LSUS MHA 706 Final Exam | Ultimate Study Guide with
Comprehensive Questions, Correct Answer & Detailed
Explanations – Latest Update 2026/2027 | Already Graded A+
1. A hospital's accounting manager needs to allocate facility costs among
several departments. Which cost driver would generally be most
appropriate for allocating building-related costs?
A. Number of physicians
B. Square footage occupied by each department
C. Number of patients admitted
D. Departmental revenue
Correct Answer: B. Square footage occupied by each department
Explanation:
Square footage is an appropriate cost driver for many facility-related
expenses because departments occupying more physical space generally
consume more building resources. A good cost driver should have a
reasonable relationship to the cost being allocated and should be perceived as
fair by the departments receiving the allocation.
2. Which statement best describes an indirect cost?
A. A cost that can be traced exclusively to one patient
B. A cost that is directly attributable to one department
C. A cost associated with resources shared by multiple departments
D. A cost that never changes
Correct Answer: C. A cost associated with resources shared by multiple
departments
Explanation:
An indirect cost cannot be conveniently or economically traced to a single
department or service. Examples can include facility administration,
information technology, housekeeping, and certain utilities. These costs are
commonly accumulated into cost pools and then allocated using appropriate
cost drivers.
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,3. Which statement best describes a direct cost?
A. A cost shared equally by all departments
B. A cost that can be specifically traced to a particular department or service
C. A cost that cannot be measured
D. A cost associated only with financing
Correct Answer: B. A cost that can be specifically traced to a particular
department or service
Explanation:
A direct cost has a clear relationship to a particular cost object. For example,
salaries of nurses assigned exclusively to a specific unit may be directly
attributable to that unit. Direct costs generally do not require the same type of
allocation process used for shared overhead.
4. What is a cost pool?
A. The amount of revenue earned by a department
B. A group of similar indirect costs accumulated for allocation
C. The organization's cash reserve
D. A group of patient accounts
Correct Answer: B. A group of similar indirect costs accumulated for
allocation
Explanation:
A cost pool contains costs that are grouped together for purposes of
allocating them to departments, services, or other cost objects. For example,
several facility-related expenses could be combined into a facilities cost pool
and allocated using square footage.
5. The allocation rate is calculated by dividing the dollars in a cost pool
by what?
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,A. Total organizational revenue
B. Total volume of the selected cost driver
C. Total number of employees
D. Total fixed costs
Correct Answer: B. Total volume of the selected cost driver
Explanation:
Allocation Rate = Cost Pool ÷ Total Cost-Driver Volume
For example, if $100,000 of facility costs are allocated based on 50,000 square
feet:
$100,000 ÷ 50,000 = $2 per square foot
Each department can then be charged according to the square footage it
occupies.
6. A hospital has a facilities cost pool of $240,000 and a total of 120,000
square feet. What is the allocation rate?
A. $0.50 per square foot
B. $1.00 per square foot
C. $2.00 per square foot
D. $3.00 per square foot
Correct Answer: C. $2.00 per square foot
Explanation:
Allocation Rate = $240,000 ÷ 120,000
= $2 per square foot
If a department occupies 10,000 square feet, its allocated facility cost would
be $20,000.
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, 7. Which allocation method assigns support-department costs directly to
patient-service departments?
A. Direct method
B. Reciprocal method
C. Equity method
D. Market method
Correct Answer: A. Direct method
Explanation:
The direct allocation method allocates support-department costs directly to
operating or patient-service departments. It is relatively simple but does not
recognize services that support departments provide to one another.
8. What is a major characteristic of the reciprocal allocation method?
A. It ignores all relationships among support departments
B. It recognizes services provided among support departments
C. It allocates only direct costs
D. It eliminates overhead costs
Correct Answer: B. It recognizes services provided among support
departments
Explanation:
The reciprocal method is the most comprehensive of the common allocation
approaches because it recognizes the mutual services exchanged among
support departments. Although it can provide more accurate allocations, it is
also more complex than the direct method.
9. Which method generally provides the simplest approach to allocating
support-department costs?
A. Reciprocal method
B. Direct method
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Comprehensive Questions, Correct Answer & Detailed
Explanations – Latest Update 2026/2027 | Already Graded A+
1. A hospital's accounting manager needs to allocate facility costs among
several departments. Which cost driver would generally be most
appropriate for allocating building-related costs?
A. Number of physicians
B. Square footage occupied by each department
C. Number of patients admitted
D. Departmental revenue
Correct Answer: B. Square footage occupied by each department
Explanation:
Square footage is an appropriate cost driver for many facility-related
expenses because departments occupying more physical space generally
consume more building resources. A good cost driver should have a
reasonable relationship to the cost being allocated and should be perceived as
fair by the departments receiving the allocation.
2. Which statement best describes an indirect cost?
A. A cost that can be traced exclusively to one patient
B. A cost that is directly attributable to one department
C. A cost associated with resources shared by multiple departments
D. A cost that never changes
Correct Answer: C. A cost associated with resources shared by multiple
departments
Explanation:
An indirect cost cannot be conveniently or economically traced to a single
department or service. Examples can include facility administration,
information technology, housekeeping, and certain utilities. These costs are
commonly accumulated into cost pools and then allocated using appropriate
cost drivers.
1|Page
,3. Which statement best describes a direct cost?
A. A cost shared equally by all departments
B. A cost that can be specifically traced to a particular department or service
C. A cost that cannot be measured
D. A cost associated only with financing
Correct Answer: B. A cost that can be specifically traced to a particular
department or service
Explanation:
A direct cost has a clear relationship to a particular cost object. For example,
salaries of nurses assigned exclusively to a specific unit may be directly
attributable to that unit. Direct costs generally do not require the same type of
allocation process used for shared overhead.
4. What is a cost pool?
A. The amount of revenue earned by a department
B. A group of similar indirect costs accumulated for allocation
C. The organization's cash reserve
D. A group of patient accounts
Correct Answer: B. A group of similar indirect costs accumulated for
allocation
Explanation:
A cost pool contains costs that are grouped together for purposes of
allocating them to departments, services, or other cost objects. For example,
several facility-related expenses could be combined into a facilities cost pool
and allocated using square footage.
5. The allocation rate is calculated by dividing the dollars in a cost pool
by what?
2|Page
,A. Total organizational revenue
B. Total volume of the selected cost driver
C. Total number of employees
D. Total fixed costs
Correct Answer: B. Total volume of the selected cost driver
Explanation:
Allocation Rate = Cost Pool ÷ Total Cost-Driver Volume
For example, if $100,000 of facility costs are allocated based on 50,000 square
feet:
$100,000 ÷ 50,000 = $2 per square foot
Each department can then be charged according to the square footage it
occupies.
6. A hospital has a facilities cost pool of $240,000 and a total of 120,000
square feet. What is the allocation rate?
A. $0.50 per square foot
B. $1.00 per square foot
C. $2.00 per square foot
D. $3.00 per square foot
Correct Answer: C. $2.00 per square foot
Explanation:
Allocation Rate = $240,000 ÷ 120,000
= $2 per square foot
If a department occupies 10,000 square feet, its allocated facility cost would
be $20,000.
3|Page
, 7. Which allocation method assigns support-department costs directly to
patient-service departments?
A. Direct method
B. Reciprocal method
C. Equity method
D. Market method
Correct Answer: A. Direct method
Explanation:
The direct allocation method allocates support-department costs directly to
operating or patient-service departments. It is relatively simple but does not
recognize services that support departments provide to one another.
8. What is a major characteristic of the reciprocal allocation method?
A. It ignores all relationships among support departments
B. It recognizes services provided among support departments
C. It allocates only direct costs
D. It eliminates overhead costs
Correct Answer: B. It recognizes services provided among support
departments
Explanation:
The reciprocal method is the most comprehensive of the common allocation
approaches because it recognizes the mutual services exchanged among
support departments. Although it can provide more accurate allocations, it is
also more complex than the direct method.
9. Which method generally provides the simplest approach to allocating
support-department costs?
A. Reciprocal method
B. Direct method
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