CSAF VERIFIED STUDY GUIDE
Contribution Margin - Answers - The difference between marginal revenue and marginal
cost; Contribution margin goes toward supporting fixed costs; if it exceeds that, it goes
to profit.
Break-even point - Answers - Break-even point is the volume number of units when the
marginal revenue covers the fixed cost opportunity; The break-even point is the level of
sales volume of a product producing the exact amount of Contribution margin needed to
cover fixed costs
Overhead - Answers - Indirect costs; Examples may include administrative and general
costs, maintenance, etc.
Activity-Based costing - Answers - Activity-based costing (ABC) is a method of
determining product costs using cost drivers or activity measures, that cause indirect
costs to be incurred. Ideal cost drivers are activities that pertain to each procedure in
varying amounts.
Activity-based costing is generally considered a more accurate costing method than the
proportionate allocation method. It is, however, often more expensive to determine due
to the necessary data collection.
Service-Line Costing - Answers - Healthcare organizations have developed product
lines based on major diagnostic categories (for example, diseases of the digestive
system or obstetric procedures).
The advantage of analyzing results by diagnostic category is that it develops an
estimate of total resources consumed, including resources consumed in shared
departments
Service Line Costing Profitability Analysis - Answers - Product-line costing can also be
useful in assessing the profitability of a proposed managed care contract and in
developing carve-out rates for specific types of cases (for example, open-heart
surgeries and bone marrow transplants).
Responsibility Accounting - Answers - Responsibility accounting is the assignment or
allocation of cost to the individual manager who is primarily responsible for making
decisions about those costs. Once the primary responsibility for incurring a specific cost
,has been established, various management reports, such as departmental expense
reports, can be developed to assess a manager's effectiveness.
An Example
The budget manager has provided you with your monthly responsibility report and has
asked you to do the following:
Analyze the unfavorable variances in wage expense and medical supplies.
Explain the reasons for these material variances between actual and budget.
Standard Costing System (intro) - Answers - There are two principal uses for cost
accounting: assist with price negotiations and identify opportunities to enhance financial
performance. Cost accounting is used for management decision-making. The better the
cost information, the better the decision-making. One of the best methods of developing
cost information is to implement a standard costing system.
Standard costs are those costs that should be incurred to produce a product. There are
three main types of standards:
Predetermined or Synthetic Standard
Negotiated or Historical Standard
Customized or Engineered Standard
Predetermined or Synthetic Standard - Answers - Advantages
Minimal development time and cost
Ease of development and implementation
Not based on specific items and not specific to an individual facility
,Disadvantages
Not customized, thus less precise
Not as well accepted
May not be applicable directly to an individual department within a specific facility
Negotiated or Historical Standard - Answers - Advantages
Easy to develop
Less expensive
Less disruptive than a customized standard
Department involvement and understanding may be better than with a predetermined
standard, but less than with a customized standard
Disadvantages
Less precise than customized standards
Difficult to obtain agreement for change predictions based on historical results
Customized or Engineered Standard - Answers - Advantages
More precise
, More supportable by individual data specific to the entity
Offer the opportunity for departmental improvement because they are based on the
actual activity or procedure at hand
Disadvantages
Very expensive
Time consuming to develop
Difficult to understand
Variable Cost - Answers - Responds, in total, more or less in direct proportion to
changes in volume.
An example is the relationship between supply costs and outpatient or patient days. For
most healthcare organizations, a majority of supply costs will vary directly with volume.
Fixed Cost Pattern - Answers - Costs that, in the short run, do not change with changes
in volume.
Examples would be depreciation, long-term lease expense, or amortization of incurred
financing costs.
Semi-Variable Cost Pattern - Answers - Costs that vary in direct relation to volume after
a minimal level of activity has been reached.
An example of semi-variable cost behavior in healthcare organizations is the telephone
expense, where a monthly access and service charge is paid initially, no matter what
the volume is, and then each time a long distance or local phone call is made, an
additional charge is assessed. This, therefore, exhibits the behavior of fixed costs
initially and variable costs thereafter.
Semi-Fixed Variabloe - Answers - Costs change with volume, but not in direct
proportion to the volume; rather, they follow a stair-step pattern.
An example of this type of change in a hospital setting would be salary cost in an acute
staffing area. If you have a 20-bed acute area with an occupancy of five patients, you
Contribution Margin - Answers - The difference between marginal revenue and marginal
cost; Contribution margin goes toward supporting fixed costs; if it exceeds that, it goes
to profit.
Break-even point - Answers - Break-even point is the volume number of units when the
marginal revenue covers the fixed cost opportunity; The break-even point is the level of
sales volume of a product producing the exact amount of Contribution margin needed to
cover fixed costs
Overhead - Answers - Indirect costs; Examples may include administrative and general
costs, maintenance, etc.
Activity-Based costing - Answers - Activity-based costing (ABC) is a method of
determining product costs using cost drivers or activity measures, that cause indirect
costs to be incurred. Ideal cost drivers are activities that pertain to each procedure in
varying amounts.
Activity-based costing is generally considered a more accurate costing method than the
proportionate allocation method. It is, however, often more expensive to determine due
to the necessary data collection.
Service-Line Costing - Answers - Healthcare organizations have developed product
lines based on major diagnostic categories (for example, diseases of the digestive
system or obstetric procedures).
The advantage of analyzing results by diagnostic category is that it develops an
estimate of total resources consumed, including resources consumed in shared
departments
Service Line Costing Profitability Analysis - Answers - Product-line costing can also be
useful in assessing the profitability of a proposed managed care contract and in
developing carve-out rates for specific types of cases (for example, open-heart
surgeries and bone marrow transplants).
Responsibility Accounting - Answers - Responsibility accounting is the assignment or
allocation of cost to the individual manager who is primarily responsible for making
decisions about those costs. Once the primary responsibility for incurring a specific cost
,has been established, various management reports, such as departmental expense
reports, can be developed to assess a manager's effectiveness.
An Example
The budget manager has provided you with your monthly responsibility report and has
asked you to do the following:
Analyze the unfavorable variances in wage expense and medical supplies.
Explain the reasons for these material variances between actual and budget.
Standard Costing System (intro) - Answers - There are two principal uses for cost
accounting: assist with price negotiations and identify opportunities to enhance financial
performance. Cost accounting is used for management decision-making. The better the
cost information, the better the decision-making. One of the best methods of developing
cost information is to implement a standard costing system.
Standard costs are those costs that should be incurred to produce a product. There are
three main types of standards:
Predetermined or Synthetic Standard
Negotiated or Historical Standard
Customized or Engineered Standard
Predetermined or Synthetic Standard - Answers - Advantages
Minimal development time and cost
Ease of development and implementation
Not based on specific items and not specific to an individual facility
,Disadvantages
Not customized, thus less precise
Not as well accepted
May not be applicable directly to an individual department within a specific facility
Negotiated or Historical Standard - Answers - Advantages
Easy to develop
Less expensive
Less disruptive than a customized standard
Department involvement and understanding may be better than with a predetermined
standard, but less than with a customized standard
Disadvantages
Less precise than customized standards
Difficult to obtain agreement for change predictions based on historical results
Customized or Engineered Standard - Answers - Advantages
More precise
, More supportable by individual data specific to the entity
Offer the opportunity for departmental improvement because they are based on the
actual activity or procedure at hand
Disadvantages
Very expensive
Time consuming to develop
Difficult to understand
Variable Cost - Answers - Responds, in total, more or less in direct proportion to
changes in volume.
An example is the relationship between supply costs and outpatient or patient days. For
most healthcare organizations, a majority of supply costs will vary directly with volume.
Fixed Cost Pattern - Answers - Costs that, in the short run, do not change with changes
in volume.
Examples would be depreciation, long-term lease expense, or amortization of incurred
financing costs.
Semi-Variable Cost Pattern - Answers - Costs that vary in direct relation to volume after
a minimal level of activity has been reached.
An example of semi-variable cost behavior in healthcare organizations is the telephone
expense, where a monthly access and service charge is paid initially, no matter what
the volume is, and then each time a long distance or local phone call is made, an
additional charge is assessed. This, therefore, exhibits the behavior of fixed costs
initially and variable costs thereafter.
Semi-Fixed Variabloe - Answers - Costs change with volume, but not in direct
proportion to the volume; rather, they follow a stair-step pattern.
An example of this type of change in a hospital setting would be salary cost in an acute
staffing area. If you have a 20-bed acute area with an occupancy of five patients, you
