Test 2 (Chapters 5-8) Flashcards
What is a CVP analysis?
A cost-volume-profit analysis looks at an organization’s cost and revenue structure and determines how a change in volume effects costs and profits
What is contribution margin?
It is the difference from per-unit revenues and per-unit variable costs.
What is the volume breakeven in equation form?
(CM * volume) = Fixed costs + Profit
What is operating leverage?
Operating leverage is the proportion of fixed costs in the cost structure (don’t worry too much about this one)
In considering capitiation payments, what factors do you need to look out for?
You need to know your cost information and expected volume, and, of course, capitation payment.
How do provider incentives shift from ffs to capitation?
Your priorities go from getting as many people into the clinic as possible to keeping your volume down to increase revenue.
What are the three primary methods for cost allocation?
The direct method, the reciprocal method, and the step-down method.
What is the direct method?
Costs are directly allocated to the patient services within each department using a cost driver
What is the reciprocal method?
Allocations include interdepartmental relationships and cost-share between departments as well as patient services.
What is the step-down method?
The step-down method recognizes the intradeparmtental dependencies but not to the full extent as the reciprocal methods. Majority of costs are still places on patient services departments. Allocation is sequenced so that costs only go down, not back up.
What is a cost pool?
The overhead costs to be allocated.
What is a cost driver?
The basis on which a cost pool is allocated.
What should be the two main characteristics of an effective cost driver?
Fairness and cost control
What are the two different methodologies behind cost allocation?
Traditional costing (top-down approach) vs. ABC cost (activity based costing) as a bottom-up approach
What is the difference between a full cost price strategy and marginal pricing?
Full cost takes the full cost of the service and asks for full cost compensation, whereas marginal pricing is pricing people only to cover the variable costs of the good/service.
