MHA 706 FINAL EXAM – LORD: Questions With
Solutions
Direct Costs ✔️Ans - 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) ✔️Ans - Costs associated with shared
resources used by the entire organization
Ex-costs associated with central services such as human resources and finance
Cost Allocation ✔️Ans - Assign all overhead costs to the departments that
create the need for such costs, typically the patient services departments.
Cost Pool ✔️Ans - Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
cost driver ✔️Ans - 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 ✔️Ans - dividing # of dollars in cash pool/total
volume of cost driver
What makes a good cost driver? ✔️Ans - 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 ✔️Ans - the costs of each support
department are allocated directly to, and only to, the patient services
departments.
Step-down allocation method ✔️Ans - 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? ✔️Ans - 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 ✔️Ans - allocates support-department
costs to operating departments by fully recognizing the mutual services
provided among all support departments
variable costs ✔️Ans - costs that vary directly with the level of
production.
Examples of variable expenses ✔️Ans - utility bill, groceries, gasoline,
phone bill
Contribution Margin ✔️Ans - The amount remaining from sales revenues
after all variable expenses have been deducted.
Revenue-Variable Expenses
Full-cost pricing ✔️Ans - Pricing method that uses all relevant variable
costs in setting a product's price and allocates those fixed costs not directly
attributed to the production of the priced item.
Breakeven Volume Calculation ✔️Ans - Break-Even point (units) = Fixed
Costs ÷ (Sales price per unit - Variable costs per unit
Basic sources of capital ✔️Ans - Working Capital, Equity Capital, Debt
Capital
Solutions
Direct Costs ✔️Ans - 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) ✔️Ans - Costs associated with shared
resources used by the entire organization
Ex-costs associated with central services such as human resources and finance
Cost Allocation ✔️Ans - Assign all overhead costs to the departments that
create the need for such costs, typically the patient services departments.
Cost Pool ✔️Ans - Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
cost driver ✔️Ans - 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 ✔️Ans - dividing # of dollars in cash pool/total
volume of cost driver
What makes a good cost driver? ✔️Ans - 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 ✔️Ans - the costs of each support
department are allocated directly to, and only to, the patient services
departments.
Step-down allocation method ✔️Ans - 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? ✔️Ans - 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 ✔️Ans - allocates support-department
costs to operating departments by fully recognizing the mutual services
provided among all support departments
variable costs ✔️Ans - costs that vary directly with the level of
production.
Examples of variable expenses ✔️Ans - utility bill, groceries, gasoline,
phone bill
Contribution Margin ✔️Ans - The amount remaining from sales revenues
after all variable expenses have been deducted.
Revenue-Variable Expenses
Full-cost pricing ✔️Ans - Pricing method that uses all relevant variable
costs in setting a product's price and allocates those fixed costs not directly
attributed to the production of the priced item.
Breakeven Volume Calculation ✔️Ans - Break-Even point (units) = Fixed
Costs ÷ (Sales price per unit - Variable costs per unit
Basic sources of capital ✔️Ans - Working Capital, Equity Capital, Debt
Capital
