VMD Medical Imaging Center

VMD Medical Imaging Center, a local independent provider of medical imaging services, is facing some important challenges. Despite efficiency improvements and cost cutting initiatives carried out over the past few years, their profitability is shrinking; their prices are becoming uncompetitive; and their main customer, a large regional research and teaching hospital, is threatening to seek alternative, more cost-effective, suppliers. The case addresses a number of important challenges that firms typically face with respect to designing and maintaining their costing systems, including the need to keep the costing system in line with the business processes of the firm throughout its life cycle; the setting of transfer prices, which highlights the interdependencies between costing systems and pricing strategies; and the demand-induced death spiral, which is brought about by a shift in sales mix from labor intensive to technology intensive imaging services. In addition, this case offers an opportunity to develop the class discussion in multiple directions, at the discretion of the instructor, such as the role of costing systems in organizations, the relationship between costing and strategy, and the facilitating role of costing with respect to cross-functional coordination.