MHA 706 Module 4 Q & As (Verified
Answers) 2026
What are direct costs? - Correct Answers ✅Expenses that
can be clearly traced to a single department or service line,
such as salaries of nurses in the ICU or surgical supplies used
only in the operating room.
Cost can be associated with volume or unit of activity
What are indirect costs? - Correct Answers ✅Also known as
overhead, these are shared resources that cannot be directly
tied to one department, including hospital utilities,
maintenance, and administrative salaries.
What is the allocation rate formula? - Correct Answers
✅Allocation Rate = Dollars in Cost Pool ÷ Total Cost Driver
Units. It distributes overhead fairly across departments.
How do you calculate the allocation rate? - Correct Answers
✅Identify the total cost pool (e.g., $100,000) and the total
number of cost driver units (e.g., 200,000 sq. ft.), then divide
the total cost pool by the total cost driver units.
What is break-even pricing? - Correct Answers ✅A pricing
strategy that ensures revenue covers costs without profit or
loss, calculated using the formula: (Price - Variable Cost per
Unit) × Volume = Fixed Costs.
,MHA 706 Module 4 Q & As (Verified
Answers) 2026
What steps are involved in break-even pricing? - Correct
Answers ✅1) Identify fixed costs. 2) Identify variable costs
per unit. 3) Use the break-even formula to find the price.
What is the capitation premium formula? - Correct Answers
✅Capitation is a fixed payment per member per month,
calculated by estimating total medical costs, adding reserves
and administrative costs, and dividing by the number of
members.
How do you calculate the PMPM in capitation? - Correct
Answers ✅Divide the total premium by the number of
members and then by 12 for PMPM.
What might a Critical Care Manager argue regarding
overhead allocation? - Correct Answers ✅They might
object to the way overhead is allocated as it could make their
department appear unprofitable and argue for more efficient
overhead departments.
What is the significance of the Step-Down Method? - Correct
Answers ✅It acknowledges inter-support services, which
helps provide a more accurate and equitable picture of
financial performance.
What are examples of direct costs in a hospital? - Correct
Answers ✅Salaries of nurses in the ICU, reagents used in
, MHA 706 Module 4 Q & As (Verified
Answers) 2026
the laboratory, and surgical supplies used in the operating
room.
What are examples of indirect costs in a hospital? - Correct
Answers ✅Hospital utilities, maintenance, housekeeping, IT
support, and administrative salaries.
What is the role of the allocation rate in cost management? -
Correct Answers ✅It helps distribute overhead costs fairly
across different departments, ensuring each department
bears an appropriate share of the total costs.
What is the purpose of break-even analysis? - Correct
Answers ✅To determine the minimum revenue needed to
cover costs, ensuring that the organization does not incur
losses.
What factors are considered in calculating capitation
premiums? - Correct Answers ✅Total medical costs,
reserves, and administrative costs.
Why is understanding cost allocation important for healthcare
managers? - Correct Answers ✅It impacts financial
performance assessments and resource allocation decisions
within departments.
Answers) 2026
What are direct costs? - Correct Answers ✅Expenses that
can be clearly traced to a single department or service line,
such as salaries of nurses in the ICU or surgical supplies used
only in the operating room.
Cost can be associated with volume or unit of activity
What are indirect costs? - Correct Answers ✅Also known as
overhead, these are shared resources that cannot be directly
tied to one department, including hospital utilities,
maintenance, and administrative salaries.
What is the allocation rate formula? - Correct Answers
✅Allocation Rate = Dollars in Cost Pool ÷ Total Cost Driver
Units. It distributes overhead fairly across departments.
How do you calculate the allocation rate? - Correct Answers
✅Identify the total cost pool (e.g., $100,000) and the total
number of cost driver units (e.g., 200,000 sq. ft.), then divide
the total cost pool by the total cost driver units.
What is break-even pricing? - Correct Answers ✅A pricing
strategy that ensures revenue covers costs without profit or
loss, calculated using the formula: (Price - Variable Cost per
Unit) × Volume = Fixed Costs.
,MHA 706 Module 4 Q & As (Verified
Answers) 2026
What steps are involved in break-even pricing? - Correct
Answers ✅1) Identify fixed costs. 2) Identify variable costs
per unit. 3) Use the break-even formula to find the price.
What is the capitation premium formula? - Correct Answers
✅Capitation is a fixed payment per member per month,
calculated by estimating total medical costs, adding reserves
and administrative costs, and dividing by the number of
members.
How do you calculate the PMPM in capitation? - Correct
Answers ✅Divide the total premium by the number of
members and then by 12 for PMPM.
What might a Critical Care Manager argue regarding
overhead allocation? - Correct Answers ✅They might
object to the way overhead is allocated as it could make their
department appear unprofitable and argue for more efficient
overhead departments.
What is the significance of the Step-Down Method? - Correct
Answers ✅It acknowledges inter-support services, which
helps provide a more accurate and equitable picture of
financial performance.
What are examples of direct costs in a hospital? - Correct
Answers ✅Salaries of nurses in the ICU, reagents used in
, MHA 706 Module 4 Q & As (Verified
Answers) 2026
the laboratory, and surgical supplies used in the operating
room.
What are examples of indirect costs in a hospital? - Correct
Answers ✅Hospital utilities, maintenance, housekeeping, IT
support, and administrative salaries.
What is the role of the allocation rate in cost management? -
Correct Answers ✅It helps distribute overhead costs fairly
across different departments, ensuring each department
bears an appropriate share of the total costs.
What is the purpose of break-even analysis? - Correct
Answers ✅To determine the minimum revenue needed to
cover costs, ensuring that the organization does not incur
losses.
What factors are considered in calculating capitation
premiums? - Correct Answers ✅Total medical costs,
reserves, and administrative costs.
Why is understanding cost allocation important for healthcare
managers? - Correct Answers ✅It impacts financial
performance assessments and resource allocation decisions
within departments.
