Introduction

The global economy relies on healthcare, which includes medical treatment, preventive care, medications, and health technologies. Beyond hospitals and clinics, pharmaceutical companies, insurance, and regulatory organizations make the healthcare business dynamic and complex, requiring careful financial management and strategic decision-making. The industry is vital in promoting social well-being, economic progress, and innovation in modern business (ScienceDirect, 2017). Healthcare firms must, therefore, manage finances well to provide quality care, encourage innovation, and navigate a continually changing industry through financial sustainability and resource allocation.

Management accounting concepts

Variable costs

In managerial accounting, variable costs are expenses that vary proportionally with activity or production (Johnson, n.d.).

 Fixed costs

“fixed costs” refers to expenses that stay constant regardless of the volume of services or goods produced. They include facility rent, administrative wages, and equipment depreciation (Johnson, n.d.).

Mixed costs

Mixed costs combine variable and fixed costs and have a fixed and variable component that varies with activity or production (Johnson, n.d.).

Job order costing

Job order costing is a managerial accounting system that allocates costs to specific tasks, projects, or services (Kesavan, 2019).

Theoretical analysis

Variable costs in healthcare

Due to patient number, medical complexity, and service demand, healthcare costs vary. The number and kind of treatments can affect the cost of medical supplies directly related to patient care. For example, variable costs may increase during peak flu seasons due to the higher use of personal protective equipment and staff to handle the increased patient load (Marques & Alves, 2023). Understanding and managing these expenses helps healthcare managers respond to changes and make responsive resource allocation and pricing decisions.

Relevance of fixed cost in healthcare

Healthcare operations depend on fixed expenditures, regardless of patient volume. Healthcare fixed costs include administrative wages, building rent, and equipment depreciation. They are essential for infrastructure and administration regardless of patient volume (Neumann, 2019). Therefore, healthcare management must carefully manage these expenditures for financial stability and ongoing service.

Applicability of mixed costs in the healthcare industry

Mixed healthcare expenses have fixed and variable components, making them difficult to examine. These include constant, continuous costs and variable costs based on healthcare services. Utility bills, where basic service prices are constant and power or water usage, are examples of mixed healthcare expenses (Marques & Alves, 2023). Healthcare managers need to identify and comprehend mixed costs to manage expenses sensitively.

Job order costing in healthcare

Job order costing, previously used in manufacturing, may work in healthcare. Job order costing may work in specialist medical treatments or surgeries (OpenStax, 2023). Each intervention is considered a “job,” allowing correct cost allocation for specific resources and supplies. Job order costing may not be universally relevant in healthcare, but it can be used in some circumstances to understand service costs better.

Case studies/field application

Variable Costs in Healthcare

Healthcare demands a flexible financial approach due to variable expenditures. Many hospitals saw a rise in patient admissions during the COVID-19 pandemic since PPE prices like masks, gloves, and gowns rose correspondingly. The hospital’s financial reports showed a more than 30% increase in PPE variable expenses (Furman et al., 2021). It shows how variable healthcare prices match service demand, prompting adequate response from healthcare administrators.

Fixed costs

Fixed cost enables constant service delivery regardless of patient load. The Cleveland Clinic illustrates the fixed expenses of maintaining cutting-edge medical equipment and infrastructure. Despite fluctuating patient volumes, the clinic’s yearly report showed stable funding for equipment and facility maintenance (The Cleveland Clinic, 2022). By maintaining vital infrastructure, fixed expenditures help healthcare facilities maintain their reliability and reputation, stressing their importance in financial management.

Mixed-cost healthcare

Healthcare mixed expenses require rigorous examination for financial management due to their fixed and variable components. Cleveland Clinic’s financial data showed