HCM 416 Exam 2 Study guide questions
& answers 2024/2025
How do you conduct profit (cost-volume-profit) analysis to analyze the impact of changing assumptions
on the profitability and break even points? - ANSWERSThis is just constructing P & L statements.
How do you forecast revenue based on volume? - ANSWERSStep 1: Resort your Data (Revenue, Variable,
& Fixed)
Step 2: Summarize your data (Divide out Revenue, Add up Variable & Fixed Costs)
Step 3: Set-up Summarized Profit Statement
Define Contribution Margin. Also, how do you solve for it? - ANSWERSIt is the amount of each visit's
revenue that avail. to:
*1st cover fixed costs
*2nd, flow to profit when fixed costs are covered
*CM= Revenues - Variable Costs
CM= Per Visit (unit) Revenue - variable cost rate.
How do you determine break-even volume? - ANSWERSAt the break-even volume, total contribution
margin must equal fixed costs. Contribution margin per unit multiplied by volume equals fixed costs, so
*Break-even Volume= Fixed Costs/CM Per unit
Total Revenues - Total Variable Costs - Fixed Costs = $0 Profit
How do you calculate expected profits at specific patient volumes? - ANSWERSSubtract total costs from
revenues.
, Revenues - (Variable + Fixed Costs)
Cost Pool - ANSWERSOverhead amount to be allocated. Consists of 1 overhead department
Cost Driver - ANSWERSBasis on which the cost pool will be allocated
Cost Allocation Rate - ANSWERSThe numerical value used to make the allocation
Allocation Rate = Dollars in Cost Pool/Total Volume of Cost Driver
What makes a good driver? Conceptually and Examples. - ANSWERSCost Drivers Should:
Create an allocation that is highly correlated with the actual amount of overhead services consumed by
the user depts. The more overhead services consumed, the greater the allocation
1) It should be perceived as being fair
2) It promotes organizational cost redution
Examples: Sq Ft of Housekeeping Services or General Admin into Salary Dollars
What is a variable? Identify examples. - ANSWERSCosts that are dependent on volume.
Ex: supplies
What is the difference b/w step-down methods? - ANSWERSDirect Method - The costs of each support
department are allocated directly and only to the patient service departments
Step-down Method - some, but not all of the intra-support dept. relationships are recognized
& answers 2024/2025
How do you conduct profit (cost-volume-profit) analysis to analyze the impact of changing assumptions
on the profitability and break even points? - ANSWERSThis is just constructing P & L statements.
How do you forecast revenue based on volume? - ANSWERSStep 1: Resort your Data (Revenue, Variable,
& Fixed)
Step 2: Summarize your data (Divide out Revenue, Add up Variable & Fixed Costs)
Step 3: Set-up Summarized Profit Statement
Define Contribution Margin. Also, how do you solve for it? - ANSWERSIt is the amount of each visit's
revenue that avail. to:
*1st cover fixed costs
*2nd, flow to profit when fixed costs are covered
*CM= Revenues - Variable Costs
CM= Per Visit (unit) Revenue - variable cost rate.
How do you determine break-even volume? - ANSWERSAt the break-even volume, total contribution
margin must equal fixed costs. Contribution margin per unit multiplied by volume equals fixed costs, so
*Break-even Volume= Fixed Costs/CM Per unit
Total Revenues - Total Variable Costs - Fixed Costs = $0 Profit
How do you calculate expected profits at specific patient volumes? - ANSWERSSubtract total costs from
revenues.
, Revenues - (Variable + Fixed Costs)
Cost Pool - ANSWERSOverhead amount to be allocated. Consists of 1 overhead department
Cost Driver - ANSWERSBasis on which the cost pool will be allocated
Cost Allocation Rate - ANSWERSThe numerical value used to make the allocation
Allocation Rate = Dollars in Cost Pool/Total Volume of Cost Driver
What makes a good driver? Conceptually and Examples. - ANSWERSCost Drivers Should:
Create an allocation that is highly correlated with the actual amount of overhead services consumed by
the user depts. The more overhead services consumed, the greater the allocation
1) It should be perceived as being fair
2) It promotes organizational cost redution
Examples: Sq Ft of Housekeeping Services or General Admin into Salary Dollars
What is a variable? Identify examples. - ANSWERSCosts that are dependent on volume.
Ex: supplies
What is the difference b/w step-down methods? - ANSWERSDirect Method - The costs of each support
department are allocated directly and only to the patient service departments
Step-down Method - some, but not all of the intra-support dept. relationships are recognized
