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Flashcards in Managerial Accounting for Healthcare Deck (48)
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1
Q

_____________ accounting is purposed to provide accounting information, generally historical in nature, to external users, including owners, lenders, suppliers, the government and insurers.

A

Financial

2
Q

__________ accounting is purposed to provide accounting information, generally current or prospective in nature, to internal users, including managers. Such information supports the planning and control management functions.

A

Managerial

3
Q

What are the four major categories of cost characteristics?

A

Traceability

Behavior

Management responsibility

Future / historical

4
Q

What is cost traceability?

What are the two subcategories?

A

The ability to determine where your funds have gone;

direct - traceable to a specfic object/ event (e.g. lab tests, salaries, supplies, rent, etc.)

indirect - untraceable without arbitrary assignment (e.g. depreciation, employee benefits, allocated resources from another department)

5
Q

What type of cost includes both direct and indirect?

What are average costs?

A

Full costs;

the full cost divided by the number of products and/or services

6
Q

What values need to be known to calculate average costs?

A

Total (full) cost;

relative value units

Full cost / relative value units = average cost

7
Q

Cost structure is determined by the relative amounts of what three factors of cost behavior?

A

1. Variable costs (e.g. gloves, MRI use, specific medications)

2. Fixed costs (e.g. rent)

3. Mixed costs (semi-fixed, semi-variable, curvilinear) (e.g. salary, number of patients per provider, etc.)

8
Q

What are marginal costs?

A

The variable cost of producing one unit (of whatever product)

9
Q

How do variable costs (e.g. amount of gloves, medication, MRI usage) change with output changes?

A

Linearly

10
Q

How do fixed costs (e.g. rent) change with output changes?

A

They do not

11
Q

How do mixed/semi-variable/semi-fixed costs (e.g. seeing X more patients means you need to hire another provider) change with output changes?

A

In a stepwise manner (non-proportionally)

12
Q

Identify each of the following as either a fixed, a variable, or a mixed cost.

o Rent

o MRI Machine

o Physician Salaries

o Latex Gloves

A

Rent - fixed

MRI machine - variable

Physician salaries - mixed

Latex gloves - variable

13
Q
A

B.

14
Q

What does it mean for a cost to have controllability?

A

The cost can be influenced by managerial decisions (e.g. labor costs; not utility costs)

15
Q

What are the four types of cost to be considered when discussing historical and future costs?

A
  1. Avoidable
  2. Sunk
  3. Incremental
  4. Opportunity
16
Q

What is an avoidable cost?

A

Activity-dependent cost (can be eliminated if an activity is discontinued)

17
Q

What is a sunk cost?

A

Costs already lost / unregainable (unaffected by the decision under consideration)

18
Q

What is an incremental cost?

A

Management action implement change (e.g. a new provider on the payroll) resulting in increased costs that should bring in more revenue (i.e. an investment)

19
Q

What are opportunity costs?

A

Values lost by using a resource in a particular way instead of the next best way

20
Q

What is cost allocation?

I.e. describe the role of cost centers and revenue-generating centers in relation to one another.

A

The process of assigning pooled indirect costs to specific cost objects using an allocation base that represents a major function of a business.

(I.e. the cost centers’ lost funds are ‘absorbed’ by the revenue-generating centers. The remaining funds are the profit.)

21
Q

What is an allocation base?

A

A cost driver;

a volume metric that is used to allocate costs, based on its cause-and-effect relationship to why the costs occurred.

E.g. the cost driver for laundry is the pounds of laundry present; the cost driver for HR is the number of employees you have at the company

22
Q

A business has a contribution margin per unit of $50, has fixed costs of $5,000, and wants to achieve a total profit of $10,000.

How many units must the business sell to earn that total profit of $10,000?

A

300

($10,000 + $5,000) / $50

23
Q

A hospital has visits from a charge-based fee-for-service payer. The payer wants to move its 50 enrollees to a capitation system. What per member per month rate must be set on these patients to maintain the current profit level?

FFS revenue per visit: $20

Variable cost per visit: $5

Fixed annual cost: $300

FFS annual visits: 100

A

$3.33 per member per month

($20/visit * 100 visits) / (50 members * 12 months)

NOTE: COSTS DO NOT MATTER HERE AS THEY DID NOT CHANGE.

24
Q

A hospital has a volume reduction of 100 procedures and profits drop from $70,000 to $50,000. What is the profitability index of the procedure?

A

$200

$20,000 / 100

25
Q

What is a profitability index?

A

The weighted contribution of a product/service per unit of output

26
Q

What are the two basic steps of cost allocation?

A

1. Decide which departments generate net revenue and which generate net cost

2. Select an allocation base (e.g. lbs. of laundry or hours of housekeeping)

27
Q

What is direct approportionment cost allocation?

A

A onetime allocation of all costs from departments that do not generate revenue to cost centers that do generate revenue.

28
Q

What is step-down approportionment cost allocation?

A

An allocation of all costs from cost centers that do not generate revenue to other non-revenue generating departments and then a onetime allocation to departments that generate revenue

1. Net cost center to net cost center

2. Net cost center to revenue generator

29
Q

Consider the following data:

Fixed costs = $10M

Variable cost per inpatient day = $400

Revenue per inpatient day = $1,200

What is the breakeven volume (in patient days)?

A

12,500

$10,000,000 / ($1,200 - $400)

30
Q

An outpatient clinic is considering a capitated agreement with an insurance company whereby the clinic would provide outpatient coverage to a 1,000 member plan at $100 per member per month. Variable costs are projected to be $150 per clinic visit, and fixed costs allocated to the agreement are $600,000 per year.

What is the breakeven point for the clinic?

A

4,000

Revenue - cost = 0

(1,000 members * $100/member/month * 12 months) - ($600,000 + ($150 * X)) = 0

31
Q

What is the very simple equation for the breakeven point?

A

Revenue - cost = 0

32
Q

A practice has annual fixed costs of $750,000 and a variable cost per visit of $50.

If volume in the first year is expected to be 10,000 visits, what price per visit must be set if the practice wants to make an annual profit of $150,000?

A

140

$750,000 + (10,000 * $50) + $150,000

/

10,000

33
Q

What is the equation for allocation rate?

A

$ being distributed (in a cost allocation)

/

total # of cost driver units in the revenue-generating departments

34
Q

You want to earn a 10% profit on a $50.00 per member premium. How do you calculate the new premium?

A

$55.56

50/0.9

35
Q

What is the equation for profitability index?

A

PI = CH(IP - V) + FP(EP - V)

36
Q

What is the equation for profit?

A

Revenue - expenses

37
Q

What is the equation for breakeven quantity?

A

Total fixed costs / (charge - variable cost)

38
Q

What is the equation for contribution margin?

A

Charge - variable cost per unit

39
Q

What is the equation for contribution margin percent?

A

(Charge - variable cost per unit) / charge

40
Q

What is the equation for breakeven point $?

A

Total fixed cost / contribution margin percent

41
Q

True/False.

The breakeven analysis is also known as cost-volume-profit analysis.

A

True.

42
Q
  1. What is the breakeven volume?
  2. How about for a $6,000 profit?

Variable cost per case = $1,000

Fixed cost per period = $100,000

Price per case = $2,400

A
  1. ) 71.4 cases
    * 100,000/(2,400-1,000)*;
  2. ) 75.7 cases
    * (100,000+6,000)/(2,400-1,000)*
43
Q

A business has a contribution margin per unit of $50, has fixed costs of $2,000, and wants to achieve a total profit of $1,000.

How many units must the business sell to earn that profit of $1,000?

A

60

($2,000+$1,000)/50

44
Q

What is prospective payment?

A

A healthcare organization accepts a fixed predetermined amount to treat a patient, regardless of the true cost of that treatment (ex. DRGs)

(Note: this is different from capitation, where the healthcare organization is paid per member regardless of patient health or disease.)

45
Q

What is the difference between a cost payer and a charge payer?

A

Cost payers: paying the average cost of services provided.

Charge payers: paying on the basis of internally set prices.

46
Q

What do you need to calculate the changes in a company’s profit if you know the change in units produced?

A

The profitability index (per unit)

47
Q

Calculate the total contribution margin (not per unit) in the problem given the following information:

Revenue is $20 per unit

Variable costs are $10 per unit

Fixed costs are $1,000

The company sold 100 units

A

$1,000

($20 per unit - $10 per unit)100 units

48
Q

What is differential costing?

A

A method of assembling costs and/or revenue for alternative decisions.

In this method, sunk costs are not relevant; incremental or differential costs are relevant.