Accounting

Why Is Cost Consciousness Necessary For Cost Control?

Educational institutions (such as public school systems, colleges and universities) and service organizations (such as hotels, motels, hospitals, and nursing homes) find it increasingly necessary to budget their expenses on a departmental basis in order to cost control and be able to charge an adequate cost recovering fee for their services. The extended services of social security via Medicare have made a knowledge of costs mandatory in hospitals and nursing homes.

Departmentalization will assist management in creating a costing or charging rate for short- or long-term care, for special services, for nurses’ instruction, etc., and for professional services (surgical, medical, X-rays, laboratory examinations, filling of prescriptions, etc.). Cost control is indispensable.

It is generally conceded that the federal government employs the greatest number of people in a vast number of departments and agencies. A similar situation exists in state and local community governments. This discussion uses the municipality as an example, for its varied services are better known to the public. Common services or departments are : street cleaning, street repairing and paving, public work projects, police and fire departments, city hospitals, sewage disposal plants, trash and garbage collection, etc.

These services should be budgeted and their costs controlled on a responsibility accounting basis. Since the costs incurred are not revenue but service-benefit-oriented, an attempt should be made to measure the operating efficiency of an activity based on some unit of measurement such as: police (per capita), street paving and cleaning (per mile), trash and garbage collection (per ton), etc. Ever-increasing costs require additional revenues; this means additional taxes. Taxpayers, however, are looking for efficient service in return for their tax money. They adopt cost control methods.

The state and federal governments must be made equally aware of the need for responsible cost control methods so that services will be rendered at a low cost with greatest efficiency. The federal government with its many departments and agencies and a huge sum budgeted for all of these units must particularly make certain that these activities are being administered by cost-conscious and service-minded people. The departmentalization process helps to assure the achievement of such a goal in any governmental unit.

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