Finance Test 6

Question 1

what are the primary differences between financial and managerial accounting?

Answer 1

managerial focuses on data at all levels of the organization for purposes of planning, decision making, and control

Question 2

Cost

Answer 2

no single definition

different costs for different purposes

Question 3

relevant range

Answer 3

the range of volume expected over some planning period. The range over which fixed costs remain constant- if vol falls outside the relevant range, the fc, estimate may be invalid

Question 4

fixed cost

Answer 4

a cost that is not related to the vol of services delivered

ex: facilities cost

Question 5

variable cost

Answer 5

a cost that is directly related to the vol of services delivered and changes in total with changes in volume
ex: the cost of clinical supplies

Question 6

Underlying Cost Structure

Answer 6

the relationship between an organization’s fixed costs, variable costs, and total costs. aka cost structure

Question 7

variable cost rate

Answer 7

the variable cost of one unit of output (volume)

Question 8

profit analysis

Answer 8

the technique applied to an organization’s cost and revenue structure that analyzes the effect of volume changes on costs and profits
aka CPV analysis

Question 9

Profit and Loss Statement

Answer 9

summarizes the revs, exps, and profitability of either the entire organization or a subunit of it

Question 10

contribution margin

Answer 10

diff between per unit rev and per unit cost

Question 11

breakeven analysis

Answer 11

a type of analysis that estimates the amount of some variable that is needed to break even

Question 12

accounting breakeven

Answer 12

the volume required to produce revenues sufficient to cover all accounting costs: zero profitability

Question 13

economic breakeven

Answer 13

the volume required to produce revenues sufficient to cover all accounting costs and to provide a specified profit level

Question 14

equation for volume breakeven

Answer 14

profit = Tot Rev - Tot VC - FC

Question 15

Marginal cost

Answer 15

the cost of one additional unit of volume

Question 16

marginal analysis

Answer 16

cost associated with each additional visit

more visits, they add to the existing base volume of visits

Question 17

Marginal analysis is made more complicated by long term considerations

Answer 17

fix costs are often difficult to change quickly in the short run, making contribution margin is more important to consider

Question 18

do marginal costs always consist only of variable costs?

Answer 18

no, they can also contain the incremental fixed cost per additional visit

Question 19

under capitation, what is the diff between a CVP graph with the number of visits on the x and the number of members on the x axis?

Answer 19

number of visits: loss is above total revenues and profit is below
number of members: loss is below total costs and profit is above total costs

Question 20

why is utilization so important in a capitated environment?

Answer 20

less utilization means lower total costs and lower total costs mean greater profit

Question 21

Why is the number of members so important in a capitated environment?

Answer 21

a greater number of members increases profitability because additional members create additional revenues that presumably exceed their incremental (variable) costs

Question 22

“to minimize financial risk, match the cost structure to the revenue structure”

Answer 22

the financial risk to a healthcare provider, at least in theory, is minimized by having a cost structure that matches its revenue structure

Question 23

What cost structure would minimize risk if a provider had all fee for service reimbursement?

Answer 23

variable costs

Question 24

What cost structure would minimize risk if a provider were entirely capitated?

Answer 24

fixes costs

Question 25

What are real world constraints on creating matching cost structures?

Answer 25

1. few providers are reimbursed solely on a fee for service of capitated basis
2. providers do not have complete control over their cost structures