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LSUS MHA 706 FINAL EXAM | FINANCIAL MANAGEMENT EXAM
LATEST VERSION QUESTIONS AND ANSWERS 2026 EDITION
LSUS MHA 706 FINAL EXAM | FINANCIAL MANAGEMENT EXAM
QUESTIONS 1-50: FINANCIAL ACCOUNTING AND REPORTING
1. What is the primary purpose of a healthcare organization's operating budget?
A. To track investment returns and capital gains
B. To project revenue and expenses for daily operations
C. To allocate funds exclusively for capital purchases
D. To monitor employee performance metrics
Correct Answer: B
Rationale: The operating budget is a financial plan that projects the revenues and
expenses related to an organization's daily operations for a specific period, typically one
year. It serves as a roadmap for financial viability, guiding operational decisions and
resource allocation. It is distinct from the capital budget, which focuses on long-term
investments. Options A and D are incorrect because they describe other financial
management functions .
2. Which financial statement reports a healthcare organization's revenues and
expenses over a specific period?
A. Balance sheet
B. Income statement
C. Cash flow statement
D. Statement of retained earnings
Correct Answer: B
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Rationale: The income statement (also called the profit and loss statement)
summarizes an organization's revenues, expenses, and net income or loss over a
specific accounting period (monthly, quarterly, annually). The balance sheet (A) is a
snapshot of financial position at a specific point in time. The cash flow statement (C)
tracks cash inflows and outflows. The statement of retained earnings (D) shows
changes in equity .
3. Which financial statement shows a healthcare organization's financial position
at a specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Changes in Equity
Correct Answer: C
Rationale: The Balance Sheet provides a snapshot of an organization's assets,
liabilities, and equity at a specific point in time (e.g., December 31). It follows the
accounting equation: Assets = Liabilities + Equity. The income statement (A) covers a
period, not a point in time. The cash flow statement (B) also covers a period. The
statement of changes in equity (D) tracks changes in equity accounts .
4. A hospital has a current ratio of 2.5. This means:
A. The hospital has $2.50 in liabilities for every $1 in assets
B. The hospital has $2.50 in current assets for every $1 in current liabilities
C. The hospital's revenue exceeds expenses by 2.5 times
D. The hospital's debt is 2.5 times its equity
Correct Answer: B
Rationale: The current ratio is calculated by dividing current assets by current liabilities
(Current Assets ÷ Current Liabilities). A ratio of 2.5 means the hospital has $2.50 in
current assets to cover each $1 of current liabilities. This is a liquidity ratio that
measures the organization's ability to meet short-term obligations. Option A is the
inverse of what the ratio indicates. Options C and D describe other financial metrics .
5. In healthcare, what is a cost driver?
A. The total cost of a department
B. A factor that influences the cost of an activity
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C. A fixed cost that cannot be controlled
D. The revenue generated by a service
Correct Answer: B
Rationale: A cost driver is a factor that causes costs to change. Examples in healthcare
include patient volume, number of procedures, square footage, or labor hours. Cost
drivers are essential for activity-based costing and cost allocation. Option A describes
total costs, C describes fixed costs, and D describes revenue .
6. A cost pool is defined as:
A. Indirect costs of patient services
B. Overhead amount to be allocated
C. Profit margin on overhead
D. Total organizational expenses
Correct Answer: B
Rationale: A cost pool represents the total overhead amount that will be allocated to
other departments. It is the collection of indirect costs associated with a specific
support department or activity. Option A is incorrect because cost pools contain the
costs to be allocated; C describes profit margins; D describes total expenses, not a
specific pool .
7. Which budget approach starts from zero and requires justification of all
expenses?
A. Incremental budgeting
B. Zero-based budgeting
C. Flexible budgeting
D. Rolling budgeting
Correct Answer: B
Rationale: Zero-based budgeting requires managers to justify all expenses for each
new period, starting from zero. Unlike incremental budgeting (A), which starts from the
previous period's budget and adjusts, zero-based budgeting forces a thorough review of
all activities and costs. Flexible budgeting (C) adjusts for changes in volume. Rolling
budgeting (D) continuously updates the budget .
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8. Which cost allocation method allocates support department costs directly to
patient service departments only?
A. Step-down method
B. Reciprocal method
C. Direct method
D. Marginal method
Correct Answer: C
Rationale: The direct method allocates support department costs directly to revenue-
producing departments (patient service departments) without recognizing services
exchanged among support departments. The step-down method (A) allocates costs
sequentially from one support department to others, then to patient service
departments. The reciprocal method (B) fully accounts for mutual services exchanged
among all support departments. The marginal method is not a standard allocation
approach .
9. In capital budgeting, what does a positive net present value (NPV) indicate?
A. The project's cost exceeds its benefits
B. The project's returns exceed the cost of capital
C. The project will break even
D. The project has no risk
Correct Answer: B
Rationale: A positive NPV means the present value of cash inflows exceeds the initial
investment cost. The project is expected to generate returns above the cost of capital,
making it financially attractive. Option A describes a negative NPV; C describes an NPV
of zero; D is incorrect because all investments carry some risk .
10. What are indirect costs?
A. Costs unique and exclusive to a department
B. Costs associated with shared resources used by the entire organization
C. Costs that can be directly traced to a specific service
D. Costs that vary directly with patient volume
Correct Answer: B
Rationale: Indirect costs are expenses associated with shared resources and support
functions that benefit the entire organization, such as facilities, administration, and
utilities. They cannot be directly traced to a specific patient service department or
LSUS MHA 706 FINAL EXAM | FINANCIAL MANAGEMENT EXAM
LATEST VERSION QUESTIONS AND ANSWERS 2026 EDITION
LSUS MHA 706 FINAL EXAM | FINANCIAL MANAGEMENT EXAM
QUESTIONS 1-50: FINANCIAL ACCOUNTING AND REPORTING
1. What is the primary purpose of a healthcare organization's operating budget?
A. To track investment returns and capital gains
B. To project revenue and expenses for daily operations
C. To allocate funds exclusively for capital purchases
D. To monitor employee performance metrics
Correct Answer: B
Rationale: The operating budget is a financial plan that projects the revenues and
expenses related to an organization's daily operations for a specific period, typically one
year. It serves as a roadmap for financial viability, guiding operational decisions and
resource allocation. It is distinct from the capital budget, which focuses on long-term
investments. Options A and D are incorrect because they describe other financial
management functions .
2. Which financial statement reports a healthcare organization's revenues and
expenses over a specific period?
A. Balance sheet
B. Income statement
C. Cash flow statement
D. Statement of retained earnings
Correct Answer: B
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Rationale: The income statement (also called the profit and loss statement)
summarizes an organization's revenues, expenses, and net income or loss over a
specific accounting period (monthly, quarterly, annually). The balance sheet (A) is a
snapshot of financial position at a specific point in time. The cash flow statement (C)
tracks cash inflows and outflows. The statement of retained earnings (D) shows
changes in equity .
3. Which financial statement shows a healthcare organization's financial position
at a specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Changes in Equity
Correct Answer: C
Rationale: The Balance Sheet provides a snapshot of an organization's assets,
liabilities, and equity at a specific point in time (e.g., December 31). It follows the
accounting equation: Assets = Liabilities + Equity. The income statement (A) covers a
period, not a point in time. The cash flow statement (B) also covers a period. The
statement of changes in equity (D) tracks changes in equity accounts .
4. A hospital has a current ratio of 2.5. This means:
A. The hospital has $2.50 in liabilities for every $1 in assets
B. The hospital has $2.50 in current assets for every $1 in current liabilities
C. The hospital's revenue exceeds expenses by 2.5 times
D. The hospital's debt is 2.5 times its equity
Correct Answer: B
Rationale: The current ratio is calculated by dividing current assets by current liabilities
(Current Assets ÷ Current Liabilities). A ratio of 2.5 means the hospital has $2.50 in
current assets to cover each $1 of current liabilities. This is a liquidity ratio that
measures the organization's ability to meet short-term obligations. Option A is the
inverse of what the ratio indicates. Options C and D describe other financial metrics .
5. In healthcare, what is a cost driver?
A. The total cost of a department
B. A factor that influences the cost of an activity
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C. A fixed cost that cannot be controlled
D. The revenue generated by a service
Correct Answer: B
Rationale: A cost driver is a factor that causes costs to change. Examples in healthcare
include patient volume, number of procedures, square footage, or labor hours. Cost
drivers are essential for activity-based costing and cost allocation. Option A describes
total costs, C describes fixed costs, and D describes revenue .
6. A cost pool is defined as:
A. Indirect costs of patient services
B. Overhead amount to be allocated
C. Profit margin on overhead
D. Total organizational expenses
Correct Answer: B
Rationale: A cost pool represents the total overhead amount that will be allocated to
other departments. It is the collection of indirect costs associated with a specific
support department or activity. Option A is incorrect because cost pools contain the
costs to be allocated; C describes profit margins; D describes total expenses, not a
specific pool .
7. Which budget approach starts from zero and requires justification of all
expenses?
A. Incremental budgeting
B. Zero-based budgeting
C. Flexible budgeting
D. Rolling budgeting
Correct Answer: B
Rationale: Zero-based budgeting requires managers to justify all expenses for each
new period, starting from zero. Unlike incremental budgeting (A), which starts from the
previous period's budget and adjusts, zero-based budgeting forces a thorough review of
all activities and costs. Flexible budgeting (C) adjusts for changes in volume. Rolling
budgeting (D) continuously updates the budget .
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8. Which cost allocation method allocates support department costs directly to
patient service departments only?
A. Step-down method
B. Reciprocal method
C. Direct method
D. Marginal method
Correct Answer: C
Rationale: The direct method allocates support department costs directly to revenue-
producing departments (patient service departments) without recognizing services
exchanged among support departments. The step-down method (A) allocates costs
sequentially from one support department to others, then to patient service
departments. The reciprocal method (B) fully accounts for mutual services exchanged
among all support departments. The marginal method is not a standard allocation
approach .
9. In capital budgeting, what does a positive net present value (NPV) indicate?
A. The project's cost exceeds its benefits
B. The project's returns exceed the cost of capital
C. The project will break even
D. The project has no risk
Correct Answer: B
Rationale: A positive NPV means the present value of cash inflows exceeds the initial
investment cost. The project is expected to generate returns above the cost of capital,
making it financially attractive. Option A describes a negative NPV; C describes an NPV
of zero; D is incorrect because all investments carry some risk .
10. What are indirect costs?
A. Costs unique and exclusive to a department
B. Costs associated with shared resources used by the entire organization
C. Costs that can be directly traced to a specific service
D. Costs that vary directly with patient volume
Correct Answer: B
Rationale: Indirect costs are expenses associated with shared resources and support
functions that benefit the entire organization, such as facilities, administration, and
utilities. They cannot be directly traced to a specific patient service department or
