Health care Finance chapter 6
Question and answers already pass
2025/2026
What are the differences between direct and indirect cost? - correct answer ✔Direct costs - tie directly
to a sub-unit in the business.
These costs don't occur if the business is closed
Indirect costs - are shared resources by the entire organization such as overhead.
These costs still occur if a business is closed (may be reduced)
What is the goal of cost allocation? - correct answer ✔The goal of cost allocation is to evenly and fairly
distribute costs out to each department. Also it is to allow managers to make better decisions regarding
costs.
What are the three primary methods of cost allocation and their differences? - correct answer ✔Direct
method - is where all overhead costs are allocated directly to the patient services departments (the
revenue producing departments) without any recognition that overhead services are provided to other
support departments.
Step-down method - recognizes some of the overhead services provided by one support department
(overhead department) to another.
Reciprocal method - Completely recognizes the services provided by one support department (overhead
department) to another
What is a cost pool? - correct answer ✔A cost pool is a dollar amount of overhead services to be
allocated. In general a cost pool consists of the total costs of one support department. However under
some circumstances it may be better to divide the costs of a support department into multiple cost
pools.
Question and answers already pass
2025/2026
What are the differences between direct and indirect cost? - correct answer ✔Direct costs - tie directly
to a sub-unit in the business.
These costs don't occur if the business is closed
Indirect costs - are shared resources by the entire organization such as overhead.
These costs still occur if a business is closed (may be reduced)
What is the goal of cost allocation? - correct answer ✔The goal of cost allocation is to evenly and fairly
distribute costs out to each department. Also it is to allow managers to make better decisions regarding
costs.
What are the three primary methods of cost allocation and their differences? - correct answer ✔Direct
method - is where all overhead costs are allocated directly to the patient services departments (the
revenue producing departments) without any recognition that overhead services are provided to other
support departments.
Step-down method - recognizes some of the overhead services provided by one support department
(overhead department) to another.
Reciprocal method - Completely recognizes the services provided by one support department (overhead
department) to another
What is a cost pool? - correct answer ✔A cost pool is a dollar amount of overhead services to be
allocated. In general a cost pool consists of the total costs of one support department. However under
some circumstances it may be better to divide the costs of a support department into multiple cost
pools.
