HCM 416- Section 1 Flashcards
Define “Fixed Cost”
- These costs are more of less known with certainty, regardless of the level of volume within the relevant range
- Independent of volume; i.e. overhead costs (utilities, maintenance, depreciation)
What are “step fixed costs”?
Costs that are fixed to a certain volume and then they increase to a higher level of fixed cost to a certain level of volume
Discuss how fixed costs should be allocated to both support departments and revenue-producing departments.
Allocated based on a cost driver that represents the fixed cost the most
Define “Variable Costs”.
Costs that are directly related to/depend of volume
What are examples of variable costs? A. Drugs B. Maintenance Supervisor Salary C. Building depreciation D. Interest Expense
clinic supplies such as
A. Drugs
Define cost pool
the overhead amount to be allocated; consists of direct costs of one overhead department.
Define cost driver
Basis on which cost pool will be allocated.
Define Allocation Rate
When the cost pool is divided by the cost driver; numerical value used to make allocation.
allocation rate= dollars in cost pool/total volume of cost driver
Define Direct Costs
Those unique/exclusive to sub-unit; one that can be directly traced to producing specific goods or services.
Define Indirect Costs
Those costs associated with shared resources used by entire organization; costs that are not directly accountable to a particular function of product; indirect include taxes, admin, personnel and security costs.
What is the goal of cost allocation?
to assign all of the costs of an organization to activities that caused them to be incurred. To improve economic performance and reduce cost.
The dollar amount of overhead services to be allocated is: A. cost pool B. cost driver C. allocation rate D. none of the above
A. Cost Pool
If the cafeteria has 3,250,000 in overhead costs to be allocated on patient days and patient days are 18,259,000 then the allocation rate is?
3,250,000/18,259,000=
178
Difference between direct and indirect costs
Direct can be traced to producing a specific good or service where indirect is associated with shared resources and are not directly accountable to particular function or product
Which of the following is an example of direct healthcare cost?
A. Premiums paid to insurance company
B. Wage reductions in employee salary for insurance
C. Taxes paid to federal government
D. Co-payment paid to the doctors office
D. Co-payment paid to the doctors office
What is the goal of cost allocation and why?
To assign all the costs of an organization to activities that caused them to be incurred. To improve economic performance and reduce cost.
On what basis are cost drivers chosen?
The extent to which costs from a pool actually vary as the value of the cost driver changes.
What are the two characteristics make a good cost driver?
They would be perceived as being fair and they should promote org cost reduction.
What are the four steps in the cost allocation process?
Identify cost pool
Determine cost driver
Calculate allocation rate
Determine allocation amount
How does a Capitation plan work?
The provider is paid a fixed amount per covered life per period regardless of the amount of services provided; per member per month (PMPM) basis; not tied to utilization, but to number of covered lives; used primarily in managed care plans
Discuss the medicare Prospective Payment Plan and DRG’s
DRG’s were developed by Medicare as part of the prospective payment plan; assigned by a group of programs based on ICD-9 codes; purpose was developed to related types of patients treated to the resources they consumed
Define Cash Accounting
Recognizes an event when cash transaction takes place; simple/easy; mimics tax statements.
A projected cash flow statements uses
cash accounting
Define Accrual Accounting
Recognizes an even when an obligation is created; more complicated; provides better picture of true economic status of business; required by GAAP.
