Exam 1 - 360
Small organizations may use a single operating budget in place of multiple budgets.
True
The American College of Healthcare Executives (ACHE) surveys its members annually regarding their most critical concerns. In recent years, financial concerns have headed the list of every survey.
True
The classification of costs as direct or indirect depends on the unit of analysis.
True
The goal (purpose) of cost allocation is to assign all overhead costs to the activities (departments) that cause the costs to be incurred.
True
The operating plan focuses on how a business plans to meet the goals and objectives contained in the strategic plan.
True
The primary goal of not-for-profit corporations generally is expressed in a mission statement that often involves service to the community.
True
The requirement to provide financial accounting information is driven by the need for outside stakeholders (primarily investors) to have reliable information about the financial status of an organization.
True
The role of finance in healthcare organizations has increased in importance over time because the finance function must support a multitude of activities such as cost containment, payer negotiations, joint venture activities, and system participation.
True
Under full cost pricing, prices are set to cover all costs, including economic costs (profits).
True
In economics, the situation in which average cost (per unit of output) declines as volume increases is known as economies of scale.
True
Mercy Hospital operates an on-site laboratory. Total (fully allocated) costs associated with the laboratory are estimated to be $500,000. Of the $500,000, Mercy estimates that $350,000 could be eliminated if the laboratory were closed. Which of the following amounts reflects the indirect costs of the laboratory?
$150,000
Consider the following data: fixed costs = $10 million and variable cost per inpatient day = $400. What revenue per inpatient day is required to obtain a profit of $1 million at a volume of 10,000 patient days?
$1,500
Assume that a business's balance sheet reports total assets of $500,000 and total liabilities of $300,000. Now assume that $20,000 of net fixed assets (net plant and equipment) are written off due to technological obsolescence. All else the same, what is the total equity of the business after the write-off?
$180,000
The Housekeeping Department of Marshfield Clinic has direct costs of $1 million. The clinic's four patient service departments utilize the following amounts of space: Department A = 5,000 square feet, Department B = 10,000 square feet, Department C = 15,000 square feet, and Department D = 20,000. Assuming that the cost driver for housekeeping costs is the amount of occupied space, what is the allocation of housekeeping costs to Department B?
$200,000
Assume that Goodhealth Clinic has fixed costs of $1 million and a total cost forecast of $1.5 million at a volume of 20,000 patient visits. What is the clinic's variable cost rate?
$25
The Housekeeping Department of Micanopy Hospital has direct costs of $500,000. The hospital's four patient service departments utilize the following amounts of space: Department A = 1,000 square feet, Department B = 2,000 square feet, Department C = 3,000 square feet, and Department D = 4,000 square feet. Assuming that the cost driver for housekeeping costs is the amount of occupied space, what is the allocation of housekeeping costs to Department A?
$50,000
Assume that Jane Adams pays income taxes at a 35 percent rate. What would be the after-tax amount on $100 of interest income that she receives?
$65
Assume the following cost and revenue data for General Hospital: fixed costs = $15 million and variable cost per inpatient day = $250. What revenue per inpatient day is required to obtain a profit of $1 million at a volume of 25,000 patient days?
$890
Super Clinics offers one service that has the following annual cost and utilization estimates: variable cost per visit = $10, annual direct fixed costs = $50,000, allocation of overhead costs = $20,000, and expected utilization = 1,000 visits. What price per visit must be set if the clinic wants to make an annual profit of $10,000 on the service?
$90
The following profit information was taken from Eastside Hospital's budget data: static budget = $1.2 million, flexible budget = $1 million, and actual results = $500,000. What is the profit variance? (Hint: An unfavorable variance is identified by a minus sign.)
-$700,000
Assume that John Richards pays income taxes at a 30 percent rate. He currently owns a not-for-profit (municipal) bond that pays 5 percent interest. What interest rate would have to be set on a for-profit (corporate) bond to produce the same amount of usable (after-tax) income?
7.1 percent
Which of the following statements about a flexible budget is correct?
A flexible budget uses realized (actual) volume along with all other original (static) budget assumptions
Which of the following statements about the step-down method of cost allocation is (are) correct?
All of the above answers are correct. The step-down method requires that allocations be made in a sequential manner. The step-down method does not allocate costs from each overhead department to every other overhead department (does not recognize the full range of interdependencies). The step-down method is more complex than the direct method.
Which of the following statements about cost allocation is (are) correct?
All of the above are correct. The direct method recognizes no intrasupport department costs. The step-down method recognizes some of the intrasupport department costs. The reciprocal method is considered more acurate and objective than the direct method.
Which of the following statements about the finance department of large healthcare organizations is (are) most correct?
Answers (a), (b), and (c) are correct.The department is headed by the chief financial officer (CFO) (sometimes called the vice-president of finance). The CFO typically reports directly to the chief executive officer (CEO). The CFO usually is assisted by a comptroller and a treasurer.
Which of the following best describe(s) the activities of a business?
Answers (a), (b), and © are all business activities. It uses money raised in the capital markets to purchase assets, such as land, buildings, and equipment. It uses purchased assets to create goods or services. It sustains itself financially by selling the goods or services produced.
Which of the following is (are) included in a business's set of financial statements?
Answers (a), (b), and ©. Income statement Balance sheet Statement of cash flows
Which of the following would most likely appear as an asset on the balance sheet of a healthcare organization?
Answers (b) and (d). Equipment purchased during the accounting period to be used over the next five years. The current market value of investments in stocks and bonds owned by the healthcare organization
Which of the following would most likely appear as a liability on the balance sheet of a healthcare organization?
Answers (b) and ©. The outstanding balance on a loan taken by the healthcare organization. Salaries owed to employees but not paid as of the balance sheet date
Which of the following equations best describes the accounting identity?
Assets = Liabilities + Equity.
Which of the following statements about the organization of the balance sheet is (are) correct?
Both (a) and (b) are correct. The balance sheet has upper and lower (or left and right) sections. Assets are divided into current and long-term categories.
Effective cost drivers should have which of the following characteristics?
Both (a) and (b) are correct. They should be perceived as being fair. They should create an incentive for cost reduction.
Which of the following statements regarding the relationship between reimbursement method and risk is (are) correct?
Both (a) and (d) are correct. Under capitation, risk is reduced by maximizing fixed costs. Under fee-for-service, risk is reduced by maximizing variable costs.
Which of the following is not part of a business's strategic plan?
Capital budget
Which of the following statements concerning income statement profitability measures is (are) most correct?
Many organizations report both operating income and net income.
Which of the following statements about medical coding is incorrect?
Coding is a relatively simple process, so no specialized training is required.
A health services organization is preparing its annual budget. In doing so, the organization examines each line of the prior year's budget and makes adjustments to reflect changes in the operating environment (e.g., inflation). Which of the following budgeting approaches does the organization most likely follow?
Conventional budgeting
Which of the following statements about the legal forms of for-profit business organization is most correct?
Corporations have the advantage of limited liability to owners.
A variance analysis using a flexible budget highlights changes that result from "managerial" factors as opposed to changes that result from volume forecast errors.
True
Which of the following statements concerning depreciation expense is correct?
Depreciation expense accounts for the loss of value of fixed assets (property and equipment).
Assume that the value of diagnostic equipment listed as an asset on the balance sheet suddenly falls because of technological obsolescence. How is the balance sheet adjusted to preserve the accounting identity?
Equity is reduced.
Which of the following statements about equity is most correct?
Equity is the residual claim against assets after all liabilities have been paid off.
Which of the following is not a finance activity?
Facilities management
As stated in the text, the four Cs (character, capability, charisma, and courtesy) summarize the attributes needed to be a good financial manager.
False
Assume an HMO estimated that the total medical costs associated with a particular employee group are $100 PMPM. Thus, it should be willing to contract with the employer at a PMPM premium of $100.
False
Because the organizational and financial goals of for-profit and not-for-profit provider organizations differ, their financial decision-making processes usually lead to very different decisions.
False
Fixed costs are costs that are known (fixed) regardless of the relevant range, while variable costs are costs that are known only within the relevant range.
False
From a financial perspective, businesses and pure charities are identical (operate in a similar fashion).
False
Fund accounting is used by investor-owned (for-profit) businesses to differentiate between operating funds and retirement funds.
False
Generally Accepted Accounting Principles provide an exact answer to every accounting question, leaving no opportunity for negotiation, compromise, or interpretation in the preparation and presentation of financial statements.
False
In general, the best way to allocate costs in a large organization is to assign all overhead expenses to a single cost pool with one cost driver.
False
Like the income statement, the balance sheet reports the assets and liabilities of an organization over some defined period.
False
The set of rules and regulations that govern the content and format of financial statements is called Government Acceptable Procedures (GAP).
False
To be the most effective, budgets must be thought of as financial staff tools
False
Under accrual accounting, all expenses reported on the income statement represent cash costs.
False
Under accrual accounting, all revenues reported on the income statement represent cash collections.
False
Under current law, the profits of not-for-profit corporations can be distributed to individuals.
False
When a provider has market dominance and hence can set its own prices (within reason), it is called a price-taker.
False
Which of the following pricing strategies is most likely to lead to long-term financial sustainability?
Full cost
Which of the following statements about cash versus accrual accounting is correct?
In cash accounting, an event is recognized when a cash transaction occurs.
Which of the following statements about budgeting is incorrect?
In zero-based budgeting, the prior budget is adopted for the coming year with no changes.
Which of the following statements about activity-based costing (ABC) is correct?
It is most useful for assigning costs to individual services or activities.
Which of the following statements about the income statement is correct?
It reports the economic profitability of an organization.
Which of the following statements about managerial accounting is incorrect?
Managerial accounting information is prepared in accordance with rules established by outsiders (Generally Accepted Accounting Principles).
Which of the following statements about regulatory and legal issues is most correct?
Most providers' primary legal concern is professional liability.
Which of the following statements concerning net income versus cash flow is correct?
Net income can be converted into a rough measure of cash flow by adding noncash expenses, typically depreciation.
Which , if any, of the following statements about the balance sheet is correct?
None of the above statements is correct.
Which , if any, of the following statements concerning accumulated depreciation is correct?
None of the above statements is correct.
Which of the following statements about cost allocation is correct?
None of the above statements is correct.
Which of the following statements about fee-for-service reimbursement is incorrect?
Payment may be based on the number of covered lives.
Which of the following individuals (or groups) are not stakeholders in not-for-profit corporations?
Stockholders
Which of the following statements about income statement expenses is (are) correct?
Supplies are expensed (shown) on the income statement when consumed (used to provide patient services).
Which of the following strategies is most likely to ensure profitability on a contract undertaken by a price-taker provider?
Target costing
Which of the following statements best describes the contribution margin?
The contribution margin is the difference between per-unit revenue and per-unit variable cost, and therefore contributes to covering fixed costs.
Which of the following statements about hospitals is most correct?
The majority of hospitals are public or not for profit (as opposed to investor owned).
Which of the following cost drivers is the most effective for allocating housekeeping costs to patient service departments?
The number of hours of housekeeping services consumed by each department
Which of the following statements about finance, accounting, and financial management is most correct?
The primary role of finance is to plan for, acquire, and use resources to maximize the efficiency and value of the enterprise.
Which of the following statements is true for for-profit corporations but false for not-for-profit corporations?
The residual earnings of the corporation belong to the owners.
Which of the following statements concerning the statement of cash flows is most correct?
The statement of cash flows uses information from both the income statement and the balance sheet.
Which of the following statements about healthcare providers is is not correct?
There are many more hospitals than there are nursing homes, but nursing homes tend to have a greater number of beds.
Which of the following statements about not-for-profit corporations is most correct?
They can issue tax-exempt (municipal) debt.
Which of the following statements about investor-owned (for-profit) corporations is incorrect?
When an individual sells his or her stock, the company receives the proceeds from the sale.
Assume that the static budget profit variance is -$200,000 while the flexible profit variance is +$200,000. Which of the following statements about this situation is correct?
When the volume forecast error is accounted for, the business made money.
Budgets are used for
answers (a), (b), and © planning. communication. control.
In very small health services organizations (say, a two-physician medical practice), the finance function is managed by a person called the
business (practice) manager
In budgeting, variance is
the difference between a realized value and a budgeted value