Knowledge of cost accounting procedures is paramount for the manager. Any business, including non-profits, will not remain financially viable without someone examining revenues and costs to determine where efficiencies can be gained. In community pharmacy, knowledge of cost accounting enables the owner/manager to determine their cost of dispensing for each prescription on average, or even particular types of prescriptions (eg, compounded ones, those conducted at certain times of the day with different staffing levels, etc). This can assist with decisions on store hours, levels of staffing, inventory purchasing, and whether or not it is viable to accept financial terms offered by a payer.

Cost accounting studies (excluding pharmacoeconomic evaluations of drugs) are relatively rare in the pharmacy literature, but we have a nice one, here. Gregorio et al conducted a cost analysis of pharmaceutical services.¹ Their study explored the development of a time-driven activity-based costing (TDABC) model, with the objective of calculating the cost of pharmaceutical services to help inform decision-making.  They describe how bottom-up approaches to cost accounting such as activity-based costing (ABC) quantify the amount of each resource that is used to produce a service and apportion costs accordingly to generate aggregate costs. However, in spite of its advantages, implementing ABC is difficult for a number of reasons, ranging from challenges in acquiring the necessary data, to the use of subjective time allocation techniques that are hard to validate. Thus, they employ their TDABC model. In doing so, pharmaceutical services supply patterns were studied in three pharmacies during a weekday through observation. Details of each activity’s execution were recorded, including time spent per activity performed by pharmacists. The calculated cost of a dispensing service in these pharmacies ranged from $3.51 to $4.54. The cost of a counseling service when no medicine was supplied ranged from $1.38 to $1.62. The cost of health screening services ranged from $3.17 to $5.05. The TDABC model provided new insights on management and costs of community pharmacies.

The costs of various services were determined using a simpler model of cost accounting. A pharmacy manager having performed a similar evaluation could then determine the feasibility of these services, evaluate the prospects of a new service, and identify potential cost savings in current service offerings.

Additional information about Financial Reports in Pharmacy Management: Essentials for All Practice Settings, 5e. If you or your institution subscribes to AccessPharmacy, use or create your MyAccess Profile to sign-in to Pharmacy Management: Essentials for All Practice Settings, 5e. If your institution does not provide access, ask your medical librarian about subscribing.

¹Gregorio J, Russo G, Lapao LV. Pharmaceutical services cost analysis using time-driven activity-based costing: A contribution to improve community pharmacies’ management. Res Social Adm Pharm. 2016;12:475-485.