MHA 706 FINAL EXAM 2023/2024
Direct Costs - 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) - 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 - 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? - 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 - ANSWER-allocates support-department costs to operating departments
by fully recognizing the mutual services provided among all support departments
variable costs - ANSWER-costs that vary directly with the level of production.
Examples of variable expenses - ANSWER-utility bill, groceries, gasoline, phone bill
Contribution Margin - ANSWER-The amount remaining from sales revenues after all variable expenses
have been deducted.
Revenue-Variable Expenses
Full-cost pricing - 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 - ANSWER-Break-Even point (units) = Fixed Costs ÷ (Sales price per unit -
Variable costs per unit
Direct Costs - 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) - 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 - 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? - 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 - ANSWER-allocates support-department costs to operating departments
by fully recognizing the mutual services provided among all support departments
variable costs - ANSWER-costs that vary directly with the level of production.
Examples of variable expenses - ANSWER-utility bill, groceries, gasoline, phone bill
Contribution Margin - ANSWER-The amount remaining from sales revenues after all variable expenses
have been deducted.
Revenue-Variable Expenses
Full-cost pricing - 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 - ANSWER-Break-Even point (units) = Fixed Costs ÷ (Sales price per unit -
Variable costs per unit
