Test and development of Fixed-Unfixed Cost Accounting Model (FUCAM) in a Hospital Setting


Mrs. Ponnambily Jobin

Assistant Professor, Chettinad College of Nursing, Chettinad Academy for Research and Education, Chennai, Tamil Nadu

*Corresponding Author E-mail: ponnambily.ponnu@gmail.com



The upward escalation of the morbidity rate in India has led to an increased demand for hospital services. At the same time, the hospital management rises the health care cost substantially in India to harvest at the right time. Similarly, the hospitals doubled the patient care charges, as the admission in the hospitals become a nightmare for the people. Here, the paper attempts to understand the difference between the actual cost spent by the hospital and a bill produced to a patient for a normal vaginal delivery through cost accounting model. With a combined prospective and retrospective approach, the author has done cost accounting for a normal vaginal delivery using a fixed-unfixed cost accounting framework. Using the convenience sampling technique, 30 records were audited and 8 normal deliveries were observed. The tool was developed by the investigator, which consists of the demographic data and observation checklist of consumables including drugs, equipment, furniture, and fittings. The maternal records were audited retrospectively to find out the average number of drugs and related consumables used per patient. The concept of this cost accounting is to estimate the cost of services to patients directly and indirectly, which helps in making decisions regarding financial statements and estimate the profit/ loss of the organization. Hopefully, a study of the existing system process in the hospital can lead to the effective logical planning process for the management in the future.


KEYWORDS: Costing, cost accounting, normal delivery, activity-based costing and costing hospital procedure.




Cost accounting is the process of collecting, classifying, analyzing and evaluating the various costs in the healthcare services. The main goal of this method is to enhance the cost efficiency and capability by controlling the expenditure[1]. It provides a detailed cost information that management needs to analyze, control current operations and plan for the future.




The term cost in a hospital setting means the total of all expenditures involved in the process of patient care services. On the other hand, accounting means the collection and maintenance of income and expenditure for the official purposes. It is a process of determining the expenditure and income thus, plan for the charges to be claimed by the patient[2]. The paper considers cost accounting of a patient care service as a method of calculation of materials used and labor employed in the delivery of care/procedure to a patient as a whole.


Objectives of the cost accounting in a hospital[3]:

A)  To calculate the expenditure

B)   To fix the cost of procedures/services in the hospital

C)   To analyze the difference between income and expenditure

D)    To plan for the future development of patient care services


Advantages of cost accounting are[4]:

A)  help to control cost

B)   help to make decisions

C)   act as a guide to fix the prices for patient care services

D)  help to reduce the cost if needed

E)   find out the profitable or nonprofitable operations or departments

F)   find out the idle capacity of hospitals


Importance of cost accounting in a hospital[5]:

Cost accounting in a hospital has many boons to managers, investors, consumers, employees, and government. They are-



Cost accounting helps them to reconsider the policies through the budget control. It helps to find out reasons for the profit or loss of an organization.



This will enable them to understand the financial condition and earning capacity of an organization. An investor must collect information through cost accounting before taking decisions on investment.



The ultimate aim of cost accounting is to reduce the cost of services to minimize the charges to be collected from patients therefore, they get high-quality services at a lower price.



Cost accounting of an organization helps to fix wage for employees. The employers will be rewarded for their efficiency. It helps to plan bonus or incentives for their employees.



It helps to determine excise duty and income tax. The government formulates policy based on cost accounting of patient care services in an organization.


Methods of cost accounting[6]

There are different approaches to cost accounting based on the purposes.


Standard cost accounting[7]

It uses ratio to compare labor and materials actually used to deliver a service with those that the same goods would have required under standard conditions.


Lean accounting[8]:

This practice focuses on value creation for the consumers with minimal waste and process. There are five principles followed;

A)  Value- Understanding clearly what a patient wants.

B)   Value stream- The entire flow of services life cycle.

C)   Flow- Keep the value stream moving. If it's not moving, it is creating waste and less value for the consumers.

D)  Pull- Do not make anything, until the consumer needs it.

E)   Perfection- Systematically and continuously remove the root cause of poor quality from the production process.


Activity-based accounting[9]:

It is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each.


Resource consumption accounting[10]:

This approach provides the ability to derive costs directly from operation resource data or to isolate and measure unused capacity costs.


Life cycle cost accounting[11]:

It is a technique to assess the environmental impacts associated with all the stages of a product's lifecycle from the cradle to graves such as material processing, distribution, use, repair, maintenance and disposal or recycling.


Environmental cost accounting[12]:

It identifies resource use, measures and communicates the cost of organization economic impact on the environment. It consists of environmental fines, penalties, taxes, purchase of pollution prevention technologies and waste management cost.


Target cost accounting[13]:

It is an approach to determine a product/equipment life cycle cost used in a hospital industry which should be functional and ensures its desired profit.



The author used activity-based accounting model to focus on cost allocation of normal vaginal delivery in a secondary rural hospital. The author divided activity-based cost accounting in a hospital setting into two types; fixed cost and unfixed cost. The author named the model as Fixed-Unfixed Cost Accounting Model (FUCAM). The figure 1 shows that the fixed cost for a patient is a cost that does not change with an increase or decrease in the number of services utilized. For example, the cost of health care personnel service, land, building, electricity consumption and so on. The fixed cost will be decided upon depreciation. Depreciation means the rate of reduction in the value of an asset over time, due in particular to wear and tear. In the current study, the rate of depreciation of land and building is fixed at 02.0% and on equipment and furniture is 15.0%. Unfixed cost is a cost that changes in proportion to the materials or services consumed by the patient, for example, disposable syringes, cotton, food, medications and so on.



Figure 1: Fixed-Unfixed Cost Accounting Model (FUCAM model)


The operational definition of fixed and unfixed cost considered in the study:

Cost of staffing in the labor room and postnatal ward:

The salary of staff in the labor room and postnatal ward are calculated monthly basis and multiplied by 13/12, including the bonus in a year.


Depreciation on equipment:

Cost of all equipment, furniture and fittings in the labor room and postnatal ward, has been listed by observation and the cost arrived at. The rate of depreciation on furniture is 15.0%. The 15.0% of depreciation is divided by the average number of deliveries per month to calculate the cost of depreciation per patient.


Depreciation of land and building:

The external measurement of the labor room and postnatal ward is divided by 100 and the product multiplied by the cost of construction per 100 sq.ft. The rate of depreciation on the building is 02.0%. The depreciation cost is divided by the average number of deliveries to calculate the depreciation on the building.


Electricity consumption:

Electricity consumption of all equipment and fittings has been observed individually which is operated for 24 hours per day and multiply 30, to work out electricity consumption per month. This is divided by 1000W to work out units of electricity consumed and multiplied by an amount to be paid by the unit.


Additional Institutional Overheads:

It is considered an indirect cost on the administrative department, utility department and so on. It is calculated as the 10% of total cost per patient from the hospital side.

Consumables per patient:

The average number of consumables used per patient has been listed and the cost of consumables is calculated per patient in the labor room and postnatal ward.


Data collection procedure:

In the current study, with a combined prospective and retrospective approach, the author has done cost accounting for a normal vaginal delivery using a fixed-unfixed cost accounting framework (Figure 1). The study was carried out in the labor room and postnatal ward in a secondary hospital in the rural area for a period of one week. The study population consisted of mothers who have undergone delivery in hospital and records of mothers who delivered normally. The mothers and records of mothers who delivered normally were selected by convenience sampling technique. The sample size calculation for auditing maternal records was based on 10% of the average number of deliveries per month. The number of observation of deliveries was based on the availability of deliveries in the labor room during the data collection period. It consisted of 8 mothers who have undergone normal vaginal delivery in hospital and 30 records of mothers who delivered normally.


Inclusion Criteria:

Mothers who spent prenatal, natal and postnatal period for at least 3 hours in the labor room

Mothers who underwent episiotomy


Exclusion Criteria:

Mothers who underwent any abnormal delivery

Mothers who underwent 3rd or 4th-degree episiotomy

Mothers who were shifted for LSCS during the 3rd stage of labor The tool was developed by the investigator, which consists of demographic data and observation checklist of consumables including drugs, equipment, furniture, and fittings. The maternal records were audited retrospectively to find out the average number of drugs and related consumables used per patient.


Data Analysis:

The data were analyzed under the following headings such as:


Cost of staffing per patient:

The researcher identified the staff who were attending the mother directly or indirectly and calculated the total salary of the employees based on the number of shifts, hours spent by the patient, salary per month including bonus. Then, the researcher divided the total salary of the employees who are attending the mother in labor room and postnatal ward with the average number of deliveries in the month to estimate the cost per head.


Cost of consumables per patient:

The researcher calculated the cost of consumables and medications used for the patient in labor room and postnatal ward.

The total cost of power consumption per patient:

The researcher counted the electric items used for the patient in labor room and postnatal ward during the hospital stay, identified the watt per hour and units per day.


The total cost of power consumption per patient=Total cost of power consumption in the month/Average number of deliveries in a month.


Depreciation on land and building:

The researcher calculated the floor area of the labor room and postnatal ward in square feet and the total cost of the floor area.


Cost per year= Grand total x 02.0% depreciation per year

Cost per month= Cost per year/12

Cost per patient= Cost per month/Average number of deliveries in a month


Depreciation on equipment:

The researcher identified the equipment, furniture and wall fittings used for the delivery care and calculated the total cost of the items.


Cost per year= Grand total x 15.0% depreciation per year

Cost per month= Cost per year/12

Cost per patient= Cost per month/Average number of deliveries in a month


Additional Institutional Overheads:

The researcher calculated the cost per patient on linen washing and laundry service and added 10.0% of the additional institutional overheads.


Total Cost per patient=Cost of staffing per patient+ Cost of consumables per patient+The total cost of power consumption per patient + Cost on land and building per patient + Cost of equipment per patient+ Cost of linen washing and autoclaving.


Final cost per patient= Total cost per patient X 10% of the total cost per patient (which is considered as additional overheads).


The further information of the results is masked by the author to protect the confidentiality and anonymity of the hospital management policies and protocols, as requested by the authority.



It is shown that the mean ±SD age of mothers was 23 ± 5.2 years and length of hospital stay for normal delivery was 3 ± 1.4 days. A study conducted regarding costing of vaginal delivery in Pakistan [14] showed that the mean age of the mothers was 26 ± 6 years. A study conducted in New York [15] showed that postpartum hospital stay of the mother was noted in the vaginal delivery group was 2.8 days. In the current study, the total expenditure cost of normal delivery with an average length of stay of 3 days for the hospital was 53.27 US$ (Rs.3615.23). A study done in Pakistan [14] showed that the average cost for a spontaneous vaginal delivery from the hospital side was 40 US$. The average bill for the normal delivery with 3 days hospital stay produced to the patient by the hospital in the current study was 48.62 US$ (Rs.3299.59) and the average loss for the hospital was 4.91 US$ (Rs. 333.22) per a vaginal delivery. It is evident from the study findings that making cost analysis is an effective management tool to determine the status of the institution by analyzing the current profit and loss, which helps them to allocate the resources in the future.



Accurate level of cost accounting is very critical to improve the efficiency and transparency of a hospital setting. The paper is a step towards the costing of various procedures in the health care delivery system. Health managers have to be insisted upon to develop a better-organized health care services and help to increase the efficiency and quality of care by allowing health workers to spend more time per client, to reduce the length of hospital stay and cost on the side of the consumer.



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Received on 01.10.2018       Modified on 16.10.2018

Accepted on 31.10.2018       ©A&V Publications All right reserved

Int.  J. of Advances in Nur. Management. 2019; 7(1): 31-34.

DOI: 10.5958/2454-2652.2019.00008.8