MHA 706 4 Exam Questions with Complete Solutions Graded A+

Indirect Cost - Answer: Are cost associated with shared resources used by the entire organization Direct Costs - Answer: Are costs unique and exclusive to a department Overhead departments - Answer: Are often called costs centers Cost Pool - Answer: Is the overhead amount to be allocated Cost Driver - Answer: Is the basis on which the cost pool will be allocated When you divide the "Dollars in the Cost Pool" by "Total Volume of Cost Driver" what have you determined? - Answer: Allocation Rate What characteristics should a Effective cost drivers have? - Answer: Perceived as being fair, Promote organizational cost reduction Types of allocation methods. - Answer: Reciprocal Method, Step-Down Method, Direct Method As an Accounting Manager - you are responsible for allocating the cost of Facilities to other departments. What would be an appropriate cost driver for you to use for this allocation? - Answer: Square footage of the department. Once a company uses the direct method to allocate indirect costs to revenue-producing departments within the facility - the total level of expenses decreases for the organization. True or false? - Answer: False When using the direct cost allocation system - often you are allocating the cost of ____ to Patient Service Departments. - Answer: Support (overhead) departments What are accounting methods to account for "costs" at an individual service level? - Answer: Cost-to-Charge Ratio (CCR), Relative Value Unit (RVU), Activity Based Costing (ABC), Time-Driven Activity Based Costing (TDABC) What are the assumptions of the Cost to charge Ratio method? - Answer: Charges reflect the level of intensity of the service provided, Each service consumes overhead costs in the same proportion as the department as a whole. Activity based costing (ABC) begins with the ..... that comprise the service provided. - Answer: Individual activities The steps required to implement Activity-Based Costing (ABC) are... - Answer: Collect -activity data for each service, Assign-cost drivers for each activity Calculate-the total costs of the service by aggregating activity costs, Identify-the relevant activities, Estimate-the cost of each activity Uses of managerial accounting information within a health service organization include: - Answer: Set prices on services, Determine the profitability of different service lines, Identify the lowest feasible price when prices are negotiated. When a provider has market dominance, and can set its own prices (within reason), it is said to be a price setter. In other situations, providers are price takers. List situations that may describe a situation where a provider is a "price-taker." - Answer: It is a perfectly competitive market, There is payer dominance, The provider is dealing with a government payer/program