Exam (elaborations)
MHA 706 FINAL-LORD
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Exam of 6 pages for the course Healthcare Finance MHA 706 at Healthcare Finance MHA 706 (MHA 706 FINAL-LORD)
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MHA 706 FINAL-LORDDirect Costs - CORRECT ANSWER-Costs unique and exclusive to a
department. GENERATE REVENUE
Ex- costs associated with providing the clinical testing such as staff and supplies.
Indirect costs (overheads) - CORRECT ANSWER-Costs associated with shared
resources used by the entire organization
Ex-costs associated with central services such as human resources and finance
Cost Allocation - CORRECT ANSWER-Assign all overhead costs to the
departments that create the need for such costs, typically the patient services
departments.
Cost Pool - CORRECT ANSWER-Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
cost driver - CORRECT ANSWER-Basis on which the cost pool will be allocated.
Ex- the cost driver for facilities overhead (building space depreciation,
maintenance, utilities, and so on) might be the amount of space used by each
department that uses the organization's facilities.
Cost Allocation Rate - CORRECT ANSWER-dividing # of dollars in cash
pool/total volume of cost driver
What makes a good cost driver? - CORRECT ANSWER-Perceived as being fair
and promote organizational cost reduction.
Assume that the cost driver for Housekeeping Services is the amount of space
occupied. User departments in total occupy 200,000 square feet of space.
, Direct cost allocation method - CORRECT ANSWER-the costs of each support
department are allocated directly to, and only to, the patient services
departments.
Step-down allocation method - CORRECT ANSWER-allocates
support-department costs to other support departments and to operating
departments in a sequential manner that partially recognizes the mutual services
provided among all support departments
What is the most used Cost Allocation Method? - CORRECT
ANSWER-Step-down method is used more because it recognizes at least some
of those interest support department relationships. So, it's a fairer in efficient way
of doing the allocation.
Reciprocal allocation method - CORRECT ANSWER-allocates
support-department costs to operating departments by fully recognizing the
mutual services provided among all support departments
variable costs - CORRECT ANSWER-costs that vary directly with the level of
production.
Examples of variable expenses - CORRECT ANSWER-utility bill, groceries,
gasoline, phone bill
Contribution Margin - CORRECT ANSWER-The amount remaining from sales
revenues after all variable expenses have been deducted.
Revenue-Variable Expenses
Full-cost pricing - CORRECT ANSWER-Pricing method that uses all relevant
variable costs in setting a product's price and allocates those fixed costs not
directly attributed to the production of the priced item.
Breakeven Volume Calculation - CORRECT ANSWER-Break-Even point (units)
= Fixed Costs ÷ (Sales price per unit - Variable costs per unit
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