The objective of this study was to describe the impact of teaching activity on academic hospital operating expenses and to develop and approach for quantifying it financially. The costing methodology developed in the study (the infrastructure and support, and the direct patient care components) was intended to form a foundation for a more comprehensive and definitive academic hospital costing study. Financial impact figures produced in this study should be regarded as directional in nature and are provided to demonstrate the application of the methodology; they are not intended to be used as is for actual funding allocation or other policy decisions.