6.0A Negative cost

6.0A.1 Scope

6.0A.1.1 This Business rule gives costing guidelines for identifying negative allocations to a cost object that is important for decision-making.

6.0A.1.2 This Business rule provides a costing guideline to address where negative expenses are allocated to products as negative costs.

6.0A.2 Objective

6.0A.2.1 To identify expenses that may relate to production, which occurred outside of the costing period and do not affect the period’s production cost, but are reported in the current period.

6.0A.2.2 To ensure that where negative expenses have occurred within the period that they have been correctly offset and assigned to the corresponding final cost centre.

6.0A.3 Business rule

6.0A.3.1 Negative costs may prevent the costing practitioner from being able to comply with the Business rules for submission of data (such as the annual cost data return), as cost collections deem that cost objects or final product costs cannot be negative.

6.0A.3.2 Negative costs are generally seen as an error in the costing process as it is generally accepted that there cannot be negative costs in the cost of production.

6.0A.3.3 Some examples of common scenarios that are responsible for the appearance of negative costs in a costed output file:

  • the sum of expenses for a particular line item in a cost centre may be negative. For example, a cost centre where the sum of all on‑costs is negative due to a large amount of accrued annual leave.
  • internal or external transfers of staff may result in negative staff expenses in some cost departments.
  • there may be negative values associated with resources consumed by patients (note: this may be an error).

6.0A.3.4 Costing practitioners should identify the cause of negative expenses. As the organisation’s general ledger is the primary source of expense information, negative expenses are most commonly identified by sorting the general ledger by the amount of expense by direct cost centre.

6.0A.3.5 Costing practitioners should also undertake preliminary data quality checks on their feeder system files. This can be achieved by sorting feeder system files (for example, pharmacy) by the fields associated with the cost calculation process (for example, quantity, price). This process can identify data issues such as negative values that are resulting in negative costs at cost object and product level.

6.0A.3.6 Alternatively, costing practitioners can address negative costs by completing a full cost allocation process to identify cost objects and activity and final products that have resulted in negative costs.

6.0A.3.7 Costing practitioners are advised to engage the finance department to understand the nature of the negative expense and how it should be treated. Negative costs, may be a legitimate facet of the accrual accounting process such as the accrual of annual leave liabilities. Where the sum of expenses for individual line items within cost centres is negative (for example, on‑costs), the costing practitioner should discuss this issue with their finance stakeholder to obtain their advice on how and where to offset these expenses in the costing system for overhead or final cost centres.

6.0A.3.8 Where unusual values are found in feeder files that result in negatively costed outputs, these should be identified and discussed with the manager of the feeder system data. Ideally, the source feeder system manager should make any required changes to the feeder file, and resubmit the file cleansed of errors, to the costing practitioner.

6.0A.3.9 If this approach will cause unreasonable delays, the costing practitioner should seek the approval of the source feeder system manager before making any necessary changes to the file for costing purposes.

6.0A.3.10 Costing practitioners should ensure that any offsets are specified as per Standard 6.2 Reconciliation to Source Data.