MHA 706 FINAL
Direct Costs - answer 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) - answer Costs associated with shared resources used by
the entire organization
Ex-costs associated with central services such as human resources and finance
Cost Allocation - answer Assign all overhead costs to the departments that create the
need for such costs, typically the patient services departments.
Cost Pool - answer Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
cost driver - answer 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 - answerdividing # of dollars in cash pool/total volume of cost
driver
What makes a good cost driver? - answerPerceived 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 - answerthe costs of each support department are
allocated directly to, and only to, the patient services departments.
Step-down allocation method - answerallocates 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? - answerStep-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 - answerallocates support-department costs to operating
departments by fully recognizing the mutual services provided among all support
departments
variable costs - answercosts that vary directly with the level of production.
Examples of variable expenses - answerutility bill, groceries, gasoline, phone bill
Contribution Margin - answerThe amount remaining from sales revenues after all
variable expenses have been deducted.
Revenue-Variable Expenses
Full-cost pricing - answerPricing 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 - answerBreak-Even point (units) = Fixed Costs ÷ (Sales
price per unit - Variable costs per unit
Basic sources of capital - answerWorking Capital, Equity Capital, Debt Capital
Factors that impact interest rates - answer-Time to maturity
-Default risk of debt issuer
-Inflation rate
-Liquidity of debt
-Protective provisions of security issuer
Debt Contracts - answerare agreements by the borrowers to pay the lenders fixed dollar
amounts at periodic intervals.
Also called (Bond indenture, Loan agreement, Promissory note)
bond interest rate - answer-Both the interest rate an issuer pays its bondholders and the
timing of payments are set when a bond is issued
-Interest on a bond accrues daily and is paid in semiannual installments over the life of
the bond
Cost of Debt Capital - answerThe required rate of return on investment of the lenders of
a company.
Direct Costs - answer 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) - answer Costs associated with shared resources used by
the entire organization
Ex-costs associated with central services such as human resources and finance
Cost Allocation - answer Assign all overhead costs to the departments that create the
need for such costs, typically the patient services departments.
Cost Pool - answer Overhead amount to be allocated.
Consists of the direct costs of one overhead department.
Ex- HR Cost.
cost driver - answer 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 - answerdividing # of dollars in cash pool/total volume of cost
driver
What makes a good cost driver? - answerPerceived 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 - answerthe costs of each support department are
allocated directly to, and only to, the patient services departments.
Step-down allocation method - answerallocates 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? - answerStep-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 - answerallocates support-department costs to operating
departments by fully recognizing the mutual services provided among all support
departments
variable costs - answercosts that vary directly with the level of production.
Examples of variable expenses - answerutility bill, groceries, gasoline, phone bill
Contribution Margin - answerThe amount remaining from sales revenues after all
variable expenses have been deducted.
Revenue-Variable Expenses
Full-cost pricing - answerPricing 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 - answerBreak-Even point (units) = Fixed Costs ÷ (Sales
price per unit - Variable costs per unit
Basic sources of capital - answerWorking Capital, Equity Capital, Debt Capital
Factors that impact interest rates - answer-Time to maturity
-Default risk of debt issuer
-Inflation rate
-Liquidity of debt
-Protective provisions of security issuer
Debt Contracts - answerare agreements by the borrowers to pay the lenders fixed dollar
amounts at periodic intervals.
Also called (Bond indenture, Loan agreement, Promissory note)
bond interest rate - answer-Both the interest rate an issuer pays its bondholders and the
timing of payments are set when a bond is issued
-Interest on a bond accrues daily and is paid in semiannual installments over the life of
the bond
Cost of Debt Capital - answerThe required rate of return on investment of the lenders of
a company.
