This paper outlines the system for cost accounting and managerial control which is an extension of the usually accepted departmental costing systems and takes as its units the 383 Diagnosis Related Groups (DRGs) considered to be the hospital's products. It is held that such an approach offers hospital managers a more powerful, analytic, budgeting, and cost-finding tool and offers the opportunity to involve the medical staff in the issues of how their practice patterns are affecting hospital costs.