HSM 301 QUESTIONS AND ANSWERS
Assume that the managers of Fort Winston Hospital are setting the price on a new
outpatient service. Here are the relevant data estimates:
Variable cost per visit $20.00
Annual direct fixed costs $500,000
Annual overhead allocation $50,000
Expected annual utilization 10,000 visits
What per visit price must be set for the service to break even? - Answer -(Price ×
Volume) - (VC rate × Volume) - Fixed costs = Profit.
To break even in the accounting sense, the service has zero profit, so the situation here
is as follows:
(Price × 10,000) - ($20 × 10,000) - $500,000 - $50,000 = $0
(Price × 10,000) - $200,000 - $500,000 - $50,000 = $0
Price × 10,000 = $750,000
Price = $75.
Fixed costs = $22,000,000
Variable cost per inpatient day = $400
What revenue per inpatient day is required to obtain a profit of $1,000,000 at a volume
of 10,000 patient days? - Answer -2,700
Super Clinics offers one service that has the following annual cost and volume
estimates:
Variable cost per visit = $20
Annual direct fixed costs = $50,000
Allocation of overhead costs = $20,000
Expected volume = 2,000 visits
What price per visit must be set if the clinic wants to make an annual profit of $20,000
on the full cost of the service? - Answer -65
Fixed costs = $22,000,000Variable cost per inpatient day = $400
Revenue per inpatient day = $2,400
What is the breakeven volume (in patient days)? - Answer -11,000
Fixed costs = $ 22,000,000Variable cost per inpatient day = $400Revenue per inpatient
day = $2,400What is the contribution margin? - Answer -2000
Fixed costs = $15,000,000
Variable cost per inpatient day = $300
Revenue per inpatient day = $1,000
,What is the expected profit at a volume of 26,000 inpatient days? - Answer -3,200,000
Fixed costs = $20,000,000Variable cost per inpatient day = $800Revenue per inpatient
day = $2,400What is the breakeven volume (in patient days)? - Answer -
Fixed costs = $30,000,000
Variable cost per inpatient day = $500
What revenue per inpatient day is required to obtain a profit of $2,000,000 at a volume
of 50,000 patient days? - Answer -
According to the textbook, the budget(master budget) actually is made up of several
component "budgets". Which of the following are these budgets? Select all that apply. -
Answer -Expense budget
Revenue budget
Operating budget
Which of the following variances is a hospital manager most likely NOT to be held
accountable for? - Answer -volume variance
The following profit information was taken from Eastside Hospital's budget data:
Simple budget: $1,200,000
Flexible budget: $1,000,000
Actual results: $ 700,000
What is the simple profit variance? - Answer --500,000
Select all definitions and explanations that are TRUE. - Answer -A profit center, also
known as a revenue center, generates revenues and incurs costs.
A cost center is typically an organization sub-unit that incurs cost but does not generate
revenue
A cost center manager can be held accountable for the organization's overhead under
their unit; in other words, the cost of running their units.
A revenue center manager can be held accountable for profitability.
A revenue center manager can be held accountable for profitability.
Answers:
A cost center manager is responsible for both the cost and revenue of his/her/their
department
Which of the following statements about managerial accounting is incorrect? - Answer -
Managerial accounting information is used primarily by managers within the
organization.
Managerial accounting information is prepared in accordance with rules established by
outsiders (generally accepted accounting principles).
Managerial accounting is primarily forward looking, as opposed to focused on historical
information.
Managerial accounting information is used both at the organizational level and at the
subunit (department) level.
, Budgets are an important managerial accounting tool.
Answers:
Managerial accounting information is prepared in accordance with rules established by
outsiders (generally accepted accounting principles).
Which of the below statements about cost allocation is most correct? - Answer -The
direct method is conceptually the best and least expensive to implement.
The reciprocal method is most widely used in practice.
The reciprocal method is conceptually the best but typically the most expensive to
implement.
Both a and b are correct
Answer:
The reciprocal method is conceptually the best but typically the most expensive to
implement.
True or 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. - Answer -false
True or false: The relationship between costs and the volume of services provided is
called underlying cost structure. - Answer -true
Which of the following statements about cost allocation is most correct? - Answer -the
direct method of allocation recognizes services provided by support departments to one
another.
A cost driver is any grouping of overhead costs that must be allocated.
The reciprocal method of allocation represents a compromise between the direct
method and the step-down method.
A cost pool is the total amount of direct costs incurred by one of the patient service
departments.
None of the above statements is correct.
Answer:
None of the above statements is correct.
Effective cost drivers should have which of the following characteristics? - Answer -they
should be perceived as being fair.
They should create an incentive for cost reduction.
They should create an allocation rate based on patient revenues.
Both a and b above are correct.
Answer:
Both a and b above are correct.
True or false: The goal (purpose) of cost allocation is to assign all overhead costs to the
activities (departments) that cause the costs to be incurred. - Answer -true
Assume that the managers of Fort Winston Hospital are setting the price on a new
outpatient service. Here are the relevant data estimates:
Variable cost per visit $20.00
Annual direct fixed costs $500,000
Annual overhead allocation $50,000
Expected annual utilization 10,000 visits
What per visit price must be set for the service to break even? - Answer -(Price ×
Volume) - (VC rate × Volume) - Fixed costs = Profit.
To break even in the accounting sense, the service has zero profit, so the situation here
is as follows:
(Price × 10,000) - ($20 × 10,000) - $500,000 - $50,000 = $0
(Price × 10,000) - $200,000 - $500,000 - $50,000 = $0
Price × 10,000 = $750,000
Price = $75.
Fixed costs = $22,000,000
Variable cost per inpatient day = $400
What revenue per inpatient day is required to obtain a profit of $1,000,000 at a volume
of 10,000 patient days? - Answer -2,700
Super Clinics offers one service that has the following annual cost and volume
estimates:
Variable cost per visit = $20
Annual direct fixed costs = $50,000
Allocation of overhead costs = $20,000
Expected volume = 2,000 visits
What price per visit must be set if the clinic wants to make an annual profit of $20,000
on the full cost of the service? - Answer -65
Fixed costs = $22,000,000Variable cost per inpatient day = $400
Revenue per inpatient day = $2,400
What is the breakeven volume (in patient days)? - Answer -11,000
Fixed costs = $ 22,000,000Variable cost per inpatient day = $400Revenue per inpatient
day = $2,400What is the contribution margin? - Answer -2000
Fixed costs = $15,000,000
Variable cost per inpatient day = $300
Revenue per inpatient day = $1,000
,What is the expected profit at a volume of 26,000 inpatient days? - Answer -3,200,000
Fixed costs = $20,000,000Variable cost per inpatient day = $800Revenue per inpatient
day = $2,400What is the breakeven volume (in patient days)? - Answer -
Fixed costs = $30,000,000
Variable cost per inpatient day = $500
What revenue per inpatient day is required to obtain a profit of $2,000,000 at a volume
of 50,000 patient days? - Answer -
According to the textbook, the budget(master budget) actually is made up of several
component "budgets". Which of the following are these budgets? Select all that apply. -
Answer -Expense budget
Revenue budget
Operating budget
Which of the following variances is a hospital manager most likely NOT to be held
accountable for? - Answer -volume variance
The following profit information was taken from Eastside Hospital's budget data:
Simple budget: $1,200,000
Flexible budget: $1,000,000
Actual results: $ 700,000
What is the simple profit variance? - Answer --500,000
Select all definitions and explanations that are TRUE. - Answer -A profit center, also
known as a revenue center, generates revenues and incurs costs.
A cost center is typically an organization sub-unit that incurs cost but does not generate
revenue
A cost center manager can be held accountable for the organization's overhead under
their unit; in other words, the cost of running their units.
A revenue center manager can be held accountable for profitability.
A revenue center manager can be held accountable for profitability.
Answers:
A cost center manager is responsible for both the cost and revenue of his/her/their
department
Which of the following statements about managerial accounting is incorrect? - Answer -
Managerial accounting information is used primarily by managers within the
organization.
Managerial accounting information is prepared in accordance with rules established by
outsiders (generally accepted accounting principles).
Managerial accounting is primarily forward looking, as opposed to focused on historical
information.
Managerial accounting information is used both at the organizational level and at the
subunit (department) level.
, Budgets are an important managerial accounting tool.
Answers:
Managerial accounting information is prepared in accordance with rules established by
outsiders (generally accepted accounting principles).
Which of the below statements about cost allocation is most correct? - Answer -The
direct method is conceptually the best and least expensive to implement.
The reciprocal method is most widely used in practice.
The reciprocal method is conceptually the best but typically the most expensive to
implement.
Both a and b are correct
Answer:
The reciprocal method is conceptually the best but typically the most expensive to
implement.
True or 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. - Answer -false
True or false: The relationship between costs and the volume of services provided is
called underlying cost structure. - Answer -true
Which of the following statements about cost allocation is most correct? - Answer -the
direct method of allocation recognizes services provided by support departments to one
another.
A cost driver is any grouping of overhead costs that must be allocated.
The reciprocal method of allocation represents a compromise between the direct
method and the step-down method.
A cost pool is the total amount of direct costs incurred by one of the patient service
departments.
None of the above statements is correct.
Answer:
None of the above statements is correct.
Effective cost drivers should have which of the following characteristics? - Answer -they
should be perceived as being fair.
They should create an incentive for cost reduction.
They should create an allocation rate based on patient revenues.
Both a and b above are correct.
Answer:
Both a and b above are correct.
True or false: The goal (purpose) of cost allocation is to assign all overhead costs to the
activities (departments) that cause the costs to be incurred. - Answer -true
