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MHA 706 FINAL LORD VERIFIED EXAMINATION
COMPLETE QUESTIONS AND DETAILED SOLUTIONS
LATEST UPDATE!!!
How do you calculate the allocation rate? - Answer-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? - Answer-A pricing strategy
that ensures revenue covers costs without profit or loss,
calculated using the formula: (Price - Variable Cost per
Unit) × Volume = Fixed Costs.
What steps are involved in break-even pricing? - Answer-
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? - Answer-
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.
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How do you calculate the PMPM in capitation? - Answer-
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? - Answer-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 are direct costs? - Answer-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? - Answer-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? - Answer-Allocation
Rate = Dollars in Cost Pool ÷ Total Cost Driver Units. It
distributes overhead fairly across departments.
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What is the significance of the Step-Down Method? -
Answer-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? - Answer-
Salaries of nurses in the ICU, reagents used in the
laboratory, and surgical supplies used in the operating
room.
What are examples of indirect costs in a hospital? -
Answer-Hospital utilities, maintenance, housekeeping, IT
support, and administrative salaries.
What is the role of the allocation rate in cost
management? - Answer-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? - Answer-To
determine the minimum revenue needed to cover costs,
ensuring that the organization does not incur losses.
MHA 706 FINAL LORD VERIFIED EXAMINATION
COMPLETE QUESTIONS AND DETAILED SOLUTIONS
LATEST UPDATE!!!
How do you calculate the allocation rate? - Answer-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? - Answer-A pricing strategy
that ensures revenue covers costs without profit or loss,
calculated using the formula: (Price - Variable Cost per
Unit) × Volume = Fixed Costs.
What steps are involved in break-even pricing? - Answer-
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? - Answer-
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.
,2|Page
How do you calculate the PMPM in capitation? - Answer-
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? - Answer-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 are direct costs? - Answer-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? - Answer-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? - Answer-Allocation
Rate = Dollars in Cost Pool ÷ Total Cost Driver Units. It
distributes overhead fairly across departments.
, 3|Page
What is the significance of the Step-Down Method? -
Answer-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? - Answer-
Salaries of nurses in the ICU, reagents used in the
laboratory, and surgical supplies used in the operating
room.
What are examples of indirect costs in a hospital? -
Answer-Hospital utilities, maintenance, housekeeping, IT
support, and administrative salaries.
What is the role of the allocation rate in cost
management? - Answer-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? - Answer-To
determine the minimum revenue needed to cover costs,
ensuring that the organization does not incur losses.
