The practice of activity-based costing in a hospital in Singapore

Abstract

Activity-Based Costing (ABC) evolved as an answer to the need for a more accurate

costing system, because conventional costing systems are not able to reflect the changes in

production processes. As ABC developed in the manufacturing setting initially, it was

discovered that it could also benefit seryice organisations. Furthermore, in view of the

rising medical costs in Singapore, there is a need to implement systems which would lead

to better information about costs, the activities that drive costs and cost allocations in

hospitals, as an aid to better decision making (such as pricing of medical services) and

planning. This project is based on a case study of ABC in a government hospital (Hospital

A).

A literature review was undertaken to provide a comprehensive understanding of ABC, its

development, the benefits and limitations. In the case study, the implementatiop of the

Singapore Government Management Accounting (SIGMA) system (which adopts the

ABC concept) in Hospital A is discussed. As a result of the new system, more timely and

accurate cost information became available; and activity-based budgeting and better

performance evaluation are made possible. A comparison of the application of ABC in

Hospital A, a government hospital, with that of another case study on XYZ Hospital, a

government restructured hospital, showed that while both hospitals adopted ABC, the

extent of its use and its benefits are different.