MHA 706 EXAM 2026 COMPREHENSIVE
STUDY COMPENDIUM WITH INSIGHTFUL
SOLUTIONS AND STRATEGIC ANSWERS
◍ Indirect costs (overheads). Ans: Costs associated with shared
resources used by the entire organization
Ex-costs associated with central services such as human resources and
finance
◍ Cost Allocation. Ans: Assign all overhead costs to the departments
that create the need for such costs, typically the patient services
departments.
◍ Cost Pool. Ans: Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
◍ cost driver. Ans: 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. Ans: dividing # of dollars in cash pool/total
volume of cost driver
◍ What makes a good cost driver?. Ans: 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. Ans: the costs of each support
department are allocated directly to, and only to, the patient services
departments.
◍ Step-down allocation method. Ans: 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?. Ans: 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.
STUDY COMPENDIUM WITH INSIGHTFUL
SOLUTIONS AND STRATEGIC ANSWERS
◍ Indirect costs (overheads). Ans: Costs associated with shared
resources used by the entire organization
Ex-costs associated with central services such as human resources and
finance
◍ Cost Allocation. Ans: Assign all overhead costs to the departments
that create the need for such costs, typically the patient services
departments.
◍ Cost Pool. Ans: Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
◍ cost driver. Ans: 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. Ans: dividing # of dollars in cash pool/total
volume of cost driver
◍ What makes a good cost driver?. Ans: 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. Ans: the costs of each support
department are allocated directly to, and only to, the patient services
departments.
◍ Step-down allocation method. Ans: 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?. Ans: 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.
