LSUS MHA 706 FINAL LORD PRACTICE
QUESTIONS AND DETAILED SOLUTIONS
◉ Indirect costs (overheads)
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
Answer: Assign all overhead costs to the departments that create the
need for such costs, typically the patient services departments.
◉ Cost Pool
Answer: Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
◉ cost driver
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
Answer: dividing # of dollars in cash pool/total volume of cost
driver
◉ What makes a good cost driver?
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
Answer: the costs of each support department are allocated directly
to, and only to, the patient services departments.
◉ Step-down allocation method
QUESTIONS AND DETAILED SOLUTIONS
◉ Indirect costs (overheads)
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
Answer: Assign all overhead costs to the departments that create the
need for such costs, typically the patient services departments.
◉ Cost Pool
Answer: Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
◉ cost driver
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
Answer: dividing # of dollars in cash pool/total volume of cost
driver
◉ What makes a good cost driver?
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
Answer: the costs of each support department are allocated directly
to, and only to, the patient services departments.
◉ Step-down allocation method
