When companies accumulate costs

Topics: Cost, Health care, Costs Pages: 2 (383 words) Published: October 10, 2013
When companies accumulate costs, they generally use either a job order or a process costing system. The type of system used often varies based on the type of product or service provided. Examine your experiences with a current or former employer and a product or service provided by this employer. My former employer provided chiropractic care. Chiropractic is a health care profession that focuses on disorders of the musculoskeletal system and the nervous system, and the effects of these disorders on general health. Chiropractic care is used most often to treat neuromusculoskeletal complaints, including but not limited to back pain, neck pain, pain in the joints of the arms or legs, and headaches. There were more than 75 clinics nationwide. So, individual clinic cost was depending on staff, offices size, equipment etc. My company used process costing system. Because the service provided by clinics are same. So, all the cost incurred to help clinic’s service sale was divide equally among all clinics. Revenue and expense were recorded by location. Even though, all clinic’s purchases and equipment also recorded by location. We were using mostly process costing system to identify cost by clinic. We were recording direct expense of the clinic by location in accounting system to get average direct cost of clinic. The most of overhead of the corporate are allocated using number of clinics. For example, the total selling and administrative expense is $100,000 per month and we have total 75 clinics. Than the selling and administrative expense is $100,000/75 = 1,333.33 per clinic per month.

But there were on expense which was depending on clinic’s direct labor. The corporate company was charging management fees same as clinic’s direct labor. The clinic’s direct labor included salaries of Doctors and clinic staff. For example, if a clinic located in Chicago downtown has 6 staff members and their salaries are $10,000 per month, than the management fee will...
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