Activity Analysis and Cost Analysis in Medical Schools.

by John Koehler, Robert L. Slighton

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In circumstances of joint production, there is no unique answer to the question of what an ongoing program costs. One can only speak of "pure" and "joint" program costs, the sum of pure costs being less than the total cost and the sum of pure and joint costs being more than total cost. However, if the policy question is whether a new program is worth doing, the appropriate cost concept is the sum of pure and joint costs. If the policy question is whether an ongoing program is paying for itself, the appropriate cost concept is pure cost. Whether the institution is paying for itself, however, is not implied in the answers to the questions concerning individual program costs. A major modification of classical cost accounting procedures is required to obtain appropriate cost estimates. Activity analysis models could provide the basis for such estimates if constructed to capture the phenomenon of joint production. The input-output model does not. 39 pp. Ref.

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