Health Services Software
(3 pages of text)
Health Services Software (HSS) was a software company specializing in software for hospitals. Founded by a health care team with first-hand knowledge of the issues facing hospitals, HSS had first mover advantage. At the onset of HSS’s operations, hospitals had capital funding that allowed them to acquire the software with five-year licensing agreements. Five years later in 2016, as the licences were expiring, the hospitals no longer had the capital funding and could not afford a large cash outlay from their operating budgets for a new five-year licence. In light of the change in funding options for the hospitals, HSS was considering whether to move to an annual-subscription-based software. But before the team could establish the prices for the software, they needed to better understand the company’s cost structure. HSS hired a consultant to conduct the costing exercise.
The case is intended to help students understand cost allocation. Its primary use is for an undergraduate- or graduate-level management accounting class. The case also has a pricing component and can be used in a marketing class to discuss pricing strategies. After working through the case and assignment questions, students will be able to
- allocate costs to multiple product lines;
- assign direct costs and allocate indirect costs; and
- illustrate how an understanding of costs is a key component of management decision-making.
Health Care Services
Canada, Small, 2016
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