|
Imagine you lived in an apartment with three other roommates. Each month, you write one check to the landlord for the rent on behalf of everyone who lives in the apartment. But you are not covering the expense for them; it costs all of them to live there. So each month they write you a check for their share of the rent. A large organization, like a hospital, works much the same way. The radiology department maintains and operates the x-ray machine, but they don’t janitorial staff. They don’t pay their own utilities separate from the rest of the hospital. The hospital pays for these things on behalf of everyone, but each department chips in their share. In order to cover things like administration (lawyers, HR people, janitorial staff, etc), rent, utilities and insurance, the hospital charges each department overhead. Using the figure provided by the hospital, overhead should be calculated and included in the total expenses.
|
|
|
