Activity Based Costing System in Dental Practice

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Nowadays, many industries, including healthcare industry, change their costing system from traditional cost accounting system to activity based costing (ABC) system. In activity-based costing, there is activity cost pool which accumulates costs that related to a single activity measure in the ABC system. In the next part of this article, the author will try to apply the ABC system to dental practice in simple case model.

Step 1: direct and indirect cost identification

All item will be identified and separated to direct cost or indirect cost.

Direct Costs
Item	Cost
Drugs and dental materials	Rp ***
Chemical reagents and diagnostic materials	Rp ***
Medical equipment used once (e.g. disposable glove and mask, cotton roll, etc)	Rp ***
Maintenance and repair (e.g. dental unit, light-cured, dental x-ray, air compressor, steril, heat sterilizator, etc)	Rp ***
Dental technician laboratory	Rp ***
Stationery	Rp ***
etc
Indirect Costs
Item	Cost
Materials for repairs and other	Rp ***
Prints	Rp ***
Telephone and computer	Rp ***
Cleaning supplies	Rp ***
Rent/lease	Rp ***
Salary	Rp ***
Clothing (protective and working)	Rp ***
etc

Step 2: assign direct and indirect costs to certain activities

Identified costs above will then be assigned to some certain basic activities in treating dental patient showed below. It will form matrix which combine direct and indirect costs to certain activities, resulting different cost for each activity.

	Activity	Patient registration	Interview & Examination	Diagnostic test	Imaging/Lab study	Perform dental procedures	etc
Resources
List of direct costs		Put an (x) to chosen direct costs which will be assigned to certain activities
List of indirect costs		Estimate the percentage of certain activities take part in resulting indirect cost (from basis of judging/the working time in %)

Step 3: count the total cost of each activity and the unit cost

After the matrix above has been filled, we can sum the subtotal of direct costs chosen and the percentage estimated indirect costs’ real value for certain activities, which leads to total cost. After we obtain total cost for each activities, we then count the unit cost. Unit cost is calculated on the basis of the number of patients (from observation/based on judgement – in one month) who gets benefit from specific activity, the calculation is showed below. Please take a note that total cost and number of patients are different for each activity.

Activity	Code	Direct Cost	Indirect Cost	Total Cost	Number of patients	Unit Cost
Patient registration	A1	Rp ***	Rp ***	Rp ***	x	Rp ***/x
Interview & examination	A2	Rp ***	Rp ***	Rp ***	xx	Rp ***/xx
Diagnostic test	A3	Rp ***	Rp ***	Rp ***	xxx	Rp ***/xxx
Imaging/Lab study	A4	Rp ***	Rp ***	Rp ***	xxxx	Rp ***/xxxx
Perform dental procedures	A5	Rp ***	Rp ***	Rp ***	xxxxx	Rp ***/xxxxx
etc	A…

Step 4: match the cost with specific patient type/treatment

This is the last step where you finally can get the specific cost for specific patient type. Some examples are explained below:

a.  Patient type 1: patient who needs root canal treatment can be subjected to activity with code A1+A2+A3+A4+A5 and their unit costs, resulting in specific total cost for this patient type.

b.  Patient type 2: patients who needs scaling because of gingival inflammation can be subjected to activity with code A1+A2+A5 and their unit costs, resulting in specific total cost for this patient type.

Conclusion

The use of ABC method in health care institutions, specifically dental practice in this article, is expected to be an answer for obtaining an accurate cost information and management which leads to good health care system itself.

Author: Muhammad Sulaiman Kusumah Adiwirya

Reference:

1. Garrison, RH., et al. 2011. Managerial Accounting: an Asian Perspective. Singapore: McGraw-Hill.

2.  Kuchta, D., Zabek, A. 2011. Activity-Based Costing for Health Care Institutions. Poland: Institute of Organization and Management, Wroclaw University of Technology.