MHA 706 Final Test Questions with Verified
Correct Answers
Direct Costs
Costs unique and exclusive to a department. GENERATE REVENUE
Ex- costs associated with providing the clinical testing such as staff and supplies.
Indirect costs (overheads)
Costs associated with shared resources used by the entire organization
Ex-costs associated with central services such as human resources and finance
Cost Allocation
Assign all overhead costs to the departments that create the need for such costs, typically the
patient services departments.
Cost Pool
Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
cost driver
Basis on which the cost pool will be allocated.
Ex- the cost driver for facilities overhead (building space depreciation, maintenance, utilities,
, and so on) might be the amount of space used by each department that uses the organization's
facilities.
Cost Allocation Rate
dividing # of dollars in cash pool/total volume of cost driver
What makes a good cost driver?
Perceived as being fair and promote organizational cost reduction.
Assume that the cost driver for Housekeeping Services is the amount of space occupied. User
departments in total occupy 200,000 square feet of space.
Direct cost allocation method
the costs of each support department are allocated directly to, and only to, the patient services
departments.
Step-down allocation method
allocates support-department costs to other support departments and to operating departments
in a sequential manner that partially recognizes the mutual services provided among all
support departments
What is the most used Cost Allocation Method?
Step-down method is used more because it recognizes at least some of those interest support
department relationships. So, it's a fairer in efficient way of doing the allocation.
Reciprocal allocation method
allocates support-department costs to operating departments by fully recognizing the mutual
services provided among all support departments
Correct Answers
Direct Costs
Costs unique and exclusive to a department. GENERATE REVENUE
Ex- costs associated with providing the clinical testing such as staff and supplies.
Indirect costs (overheads)
Costs associated with shared resources used by the entire organization
Ex-costs associated with central services such as human resources and finance
Cost Allocation
Assign all overhead costs to the departments that create the need for such costs, typically the
patient services departments.
Cost Pool
Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
cost driver
Basis on which the cost pool will be allocated.
Ex- the cost driver for facilities overhead (building space depreciation, maintenance, utilities,
, and so on) might be the amount of space used by each department that uses the organization's
facilities.
Cost Allocation Rate
dividing # of dollars in cash pool/total volume of cost driver
What makes a good cost driver?
Perceived as being fair and promote organizational cost reduction.
Assume that the cost driver for Housekeeping Services is the amount of space occupied. User
departments in total occupy 200,000 square feet of space.
Direct cost allocation method
the costs of each support department are allocated directly to, and only to, the patient services
departments.
Step-down allocation method
allocates support-department costs to other support departments and to operating departments
in a sequential manner that partially recognizes the mutual services provided among all
support departments
What is the most used Cost Allocation Method?
Step-down method is used more because it recognizes at least some of those interest support
department relationships. So, it's a fairer in efficient way of doing the allocation.
Reciprocal allocation method
allocates support-department costs to operating departments by fully recognizing the mutual
services provided among all support departments
