cost allocation -- it's the biggest fairy tale

why does the US Military pay $10,000 per toilet seat? why does an aspirin at your local hospital cost $999.95? it's cost allocation accounting, and it's the biggest boondoggle on consumers and taxpayers
since embezzelment!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
-----BEGIN PGP SIGNED MESSAGE----- Hash: SHA1
mrs. eliza humperdink wrote:

The US Military pays $10,000 per toilet seat because it a byproduct of the most cost effective method of replacement and repair costs for the aircraft as a whole.
Let me explain with a simple example. When DoD buys airplanes it has the option of paying cost plus either a fixed charge per order or a percentage of the actual cost. Assume that the toilet seat cost the aircraft manufacturer $10.00 and the parts for the biannual engine overhaul cost $800,000. Had DoD elected to go with a percentage the toilet seat would have cost $11.00, but the biannual engine overhaul would have cost $880,000 rather than $809,990.
The DoD accountants whipped out their calculators and determined that in order to obtain the lowest overall cost to the taxpayers it made more sense to go for the fixed charge per order -- hence the $10,000 toilet seat.
Based on your lack of research on the subject the congressman who presented himself as a watchdog of the public good and was photographed holding up the toilet seat succeeded in his goal of hoodwinking the voters.
Now as to a $999.95 aspirin tablet -- go to a reputable hospital and you can get the same aspirin tablet for under $10.00 and get better quality treatment as a bonus.
Yes, hospitals charge a lot more than the discount drugstore for medications. But then the discount drugstore doesn't have pharmacists on duty 24/7, doesn't manage all of your medications and isn't liable in the event you create your own fatal mix of medicines. -----BEGIN PGP SIGNATURE----- Version: GnuPG v2.0.4-svn0 (GNU/Linux) Comment: Using GnuPG with SUSE - http://enigmail.mozdev.org
iD8DBQFHmrykOaQSGSB4e8ARAs13AJ45zXcLJkX+3O1H0Kuz5aWeoQXmvQCfXuOc wAnMKtGnBLNDHgqEojha2dU=6WOp -----END PGP SIGNATURE-----
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

i see. this all goes to say that "costs" as computed by accountants are meaningless. we are best off to ignore accounting numbers because they don't correspond to real costs.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
-----BEGIN PGP SIGNED MESSAGE----- Hash: SHA1
mrs. eliza humperdink wrote:

No the costs ae not meaningless. Actual money changes hands. The accounting numbers reflect the actual cost of the product, the additional cost of doing business and, in the DoD example, the predetermined profit allowed the vendor.
Real costs include allocated costs as well as the direct cost of merchandise for resale. You might disagree with the rationale used to determine the allocations, but unless you price your products to recover the allocated costs as well as the merchandise costs you won't be in business very long. -----BEGIN PGP SIGNATURE----- Version: GnuPG v2.0.4-svn0 (GNU/Linux) Comment: Using GnuPG with SUSE - http://enigmail.mozdev.org
iD8DBQFHm2WAOaQSGSB4e8ARAo44AJ0REbICXUVR1KffznA2WGv1sCWwzgCgx2gk NJj1z+JyZo+ewk04iHEhbes=vvLT -----END PGP SIGNATURE-----
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

since real money changes hands, wouldn't it make more sense to everyone if they just track the cash that changes hands? just tell me how much cash the hospital used to buy that aspirin tablet, tack on a fair profit percentage, like 25%, and I'll pay that. fergggitaboutit!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Many years ago I did some consulting work for the doctors group that supplied the ER doctors for a local hospital. About one third of their procedures (about $1 million out of $3 million in charges) had to be written off due to the patient not being insured. Those same people stiffed the hospital charges as well. Total up all the costs of the hospital and allocate them accordingly to all revenue sources, and you get a $35 charge for an aspirin tablet......hand delivered to your bed side by a professional.
Or, you could wheel your self over to the nearest pharmacy and choke down all the aspirin you like - several bottles in fact - for the same $35. Then you can have an ambulance take you back to the hospital ($185 ride) so they can pump your guts in the ER ($2867.50), and give you an aspirin ($35) for the pain.
--
Have no fear of perfection - you'll never reach it.
----------
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

i see now. cost allocation is a way for the hospital to quietly shuffle their losses from treating deadbeats onto the bills of hard working, honest paying customers. Isn't this dishonest? Why should Congress permit hospitals to make paying customers pay for costs that deadbeat patients rack up? At the very least, the hospital should be required to disclose the following on every bill: 1) our cash cost for the aspirin you ate: $0.07 2) what we pay the nurse to feed you the aspirin: $10 3) your share of deadbeat patients we treated: $24.95 ----------------------- 3) what we are billing you for your aspirin tablet: $35.00
Cost allocation is dishonest! Congress should pass legistlation to outlaw it ASAP!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I hate to break it to you, but every business has what's called "shrinkage", sometimes it's theft through the front entrance, other times it's theft through the employee entrance. So those pair of pants you buy have the cost of all the store's theft loss built into the price you pay. Resturants and grocery stores build the cost of spoilage and breakage into their prices too. This is nothing new, and shouldn't be *shocking* to you.

It's business.

LMAO
For the hospitals, it's just ~because~ Congress requires the hospital to treat those "deadbeats". There's a law that requires them not to turn away a patient due to inability to pay.
It's a backdoor way that Congress provides medical care to the indigent and uninsured without having to tax anyone directly.
In no other industry is this requirement made. Restaurants aren't forced to feed those without the ability to pay, and if someone stiffs them on the bill, they can call the cops. The hospital HAS to treat them the next time they come in, and the tenth time they come in, and the 44th time they come in.
That's why so many hospital ER's are clogged with folks who use the ER as their primary care doctor.
This can't possibly be news to you.
--
If electricity comes from electrons,
does morality come from morons?
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I see now, mr. cpa. the accounrting "business" is a dirty one. it's all about hoodwinking the unsuspecting public by sneaking cost allocation to make the poor souls unsuspectingly pay for stuff they didn't buy. And don't say this is "shrinkage". Nobody's shrinkage is 200% LoL
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

It can be very interesting.

It's all about making the shareholders (owners) of the business wealthy.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

OK, we are in full agreement. Accounting is a tool to maximize profits for the wealthy owners at the expense of poor consumers, laborers, and hoodwinked investors. Accountants are apologists -- peon soilders doing the dirty work for rich people.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Yes. But not all owners are "wealthy", at least not in the begining.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

yes, so you agree that accounting is mainly a tool for OWNERS to mislead and gype consumers and workers. Only owners and shareholders benefit from accounting. The maid and blue collar workers don't benefit.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Owners and management, yes.

Investors and lenders do also.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

accountants screw the working man and small time investors.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Sun, 27 Jan 2008 12:16:39 -0800 (PST), "mrs. eliza humperdink"

And, as we wait in rapt anticipation, your solution to this problem(s) is?
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

get ride of cost accounting. stick to the facts -- just give me the raw, un-manipulated cash flow statistics without the bookkeeping accruals.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

Or, better yet, keep the accountants out of sight, out of mind -- in the back office where they belong.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Cost accounting IS the facts.

Cash flow reports are useful, but they must include accruals for receivables (money yet to come in) and payables (money to be paid out. Otherwise management can't make good decisions.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

duuuuuh! you have become so imbedded in your own accounting double speak that you can't even distinguish the difference between a direct cash flow statement and your double-speak indirect statement.
just give me the direct statement and fergittaboutit. i can process the information myself. why do i need accounting to mutilate the cash information before they give it to me???
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.