Share
Explore BrainMass

Analyzing Fixed and Variable Costs in the Healthcare Field

Choose the best answer for each of the following:

1. In the long run:
a. All costs are fixed
b. All costs are mixed
c. All costs are variable
d. Paying a monthly 'budget' amount for utilities is a fixed cost

2. Which of the following is most likely a fixed cost?
a. Income taxes
b. The cost of merchandise sold
c. Depreciation taken on equipment
d. The cost of commissioned sales people
e. All of the above

3. Which of the following is most likely a variable cost?
a. Depreciation taken on an office building
b. Wages for production workers
c. Interest on corporate bonds
d. Rent on an office building
e. None of the above

4. The use of operating leverage:
a. Requires a teeter totter to be installed in the office
b. Requires the firm to have only variable costs
c. Increases the breakeven level
d. Eliminates all fixed costs
e. None of the above

5. Operating leverage is:
a. Always bad
b. Always good
c. Good, when the economy is bad
d. Good when the economy is good

6. The goal of breakeven analysis is to:
a. Avoid paying taxes
b. Earn as much as your competitors
c. Set variable costs equal to fixed costs
d. Determine long-term investment levels
e. Determine the minimum volume of business to avoid a loss

7. Comparing a capitated environment to a fee-for-service environment; in a capitated environment:
a. Each additional visit creates costs without a corresponding increase in revenues
b. The total revenues line on a CVP graph is flat rather than upward sloping
c. Less utilization rather than more utilization enhances profitability
d. Providers of health services also take on an insurance function
e. All of the above

8. In a multi-service facility, which of the following is direct cost?
a. Electricity
b. Custodial services
c. Depreciation on the building
d. Nurse pay in one department
e. All of the above are direct costs

9. A good cost driver does all of the following except:
a. Allocates costs fairly
b. Helps in controlling costs
c. Can be traditional or activity based
d. Provides greater benefits than its cost
e. All of the above are elements of a good cost driver

10. Which costs are most likely allocated?
a. Fixed costs
b. Direct costs
c. Variable costs
d. Indirect costs
e. None of the above

11. In allocating support services to other support service departments, which method is most accurate?
a. Direct method
b. Reciprocal method
c. Step-down method

12. In allocating support services to other support service departments, which method is easiest?
a. Direct method
b. Reciprocal method
c. Step-down method

13. Activity based costing is:
a. Is only suitable for large organizations
b. Generally not as accurate as traditional costing
c. Is generally less expensive to implement than traditional costing
d. Generally better than traditional costing, but more expensive to implement than traditional costing

14. Which of the following is not true?
a. A price setter usually has a large market share
b. Price setters must watch costs more closely than price takers
c. A health provider in a competitive market is usually a price taker
d. A health care provider can be both a price setter and a price taker
e. All of the above are true

15. To allocate the cost of Financial Services in a Health Care setting:
a. Patient revenues is a better cost driver
b. The number of bills is a better cost driver
c. We are better to not allocate the cost of Financial Services
d. Using both the number of bills and patient revenues may be the best method

16. Which is more likely to be used by a price setter wanting to provide a full range of services to constituents at various wealth levels?
a. Target costing
b. Full cost pricing
c. Cross subsidization
d. Marginal cost pricing

17. Which is more likely to be used by a price taker?
a. Target costing
b. Full cost pricing
c. Cross subsidization
d. Marginal cost pricing

18. Government intervention in healthcare, to insure care for the poor, will likely move healthcare providers toward:
a. Being price takers and using target costing
b. Being price setters and using target costing
c. Being price setters and using cross subsidization
d. Being price takers and using cross subsidization

19. Health care providers are:
a. Price takers
b. Price setters
c. A price setter or price taker, depending on their costing method
d. Either a price setter or price taker, depending on the competition

20. If long-run prices are set on the basis of marginal costs, the organization may:
a. Not recover its total costs
b. Not recover its direct costs
c. Temporarily build market share
d. Not recover its overhead fixed costs
e. All of the above

21. To set capitation rates, which method is best?
a. Fee-for-service method
b. Demographic approach
c. Budgetary, or cost approach
d. In general, one approach is as good as another

22. Which is most likely the shortest?
a. Corporate goals
b. Vision statement
c. Values statement
d. Mission statement
e. Corporate objectives

23. Which is least likely to change?
a. Corporate goals
b. Vision statement
c. Values statement
d. Mission statement
e. Corporate objectives

24. Using the bottom-up, or participatory approach:
a. Budgets are first developed by individuals who are most knowledgeable regarding their departments' or programs' financial needs
b. Requires component budgets to be sent back to the original preparers for revision
c. Often initially results in an organizational budget that is not financially feasible
d. Does not reflect top management's perspective from the start
e. All of the above

25. In variance analysis, which of the following will provide the largest differences?
a. Comparing the static budget to the actual results
b. Comparing the static budget to the flexible budget
c. Comparing the actual results to the flexible budget
d. We cannot tell

26. During an economic downturn:
a. Conventional budgeting is more useful because the budget is likely to have a great deal of change
b. Zero-based budgeting is more useful because the budget is likely to have a great deal of change
c. Conventional budgeting is more useful because the previous budget provides a good
starting point
d. Zero-based budgeting is more useful because the previous budget provides a good starting point

27. A cash budget is useful:
a. For liquidity planning
b. To project cash inflows and outflows
c. Can show when the organization can invest excess cash
d. Can show when the organization needs to borrow cash
e. All of the above

Solution Preview

1. In the long run:
a. All costs are fixed
b. All costs are mixed
c. All costs are variable <-- In the long run, there are no fixed costs
d. Paying a monthly 'budget' amount for utilities is a fixed cost

2. Which of the following is most likely a fixed cost?
a. Income taxes
b. The cost of merchandise sold
c. Depreciation taken on equipment <-- Depreciation, as long as it's done over straight line depreciation or another method where the amount doesn't change
d. The cost of commissioned sales people
e. All of the above

3. Which of the following is most likely a variable cost?
a. Depreciation taken on an office building
b. Wages for production workers <-- This would be, because it's based on activity
c. Interest on corporate bonds
d. Rent on an office building
e. None of the above

4. The use of operating leverage:
a. Requires a teeter totter to be installed in the office
b. Requires the firm to have only variable costs
c. Increases the breakeven level <-- This is true. Operating leverage increases as fixed to variable costs increase
d. Eliminates all fixed costs
e. None of the above

5. Operating leverage is:
a. Always bad
b. Always good
c. Good, when the economy is bad
d. Good when the economy is good <-- This is correct because it can drive growth forward in an expanding economy

6. The goal of breakeven analysis is to:
a. Avoid paying taxes
b. Earn as much as your competitors
c. Set variable costs equal to fixed costs
d. Determine long-term investment levels
e. Determine the minimum volume of business to avoid a loss <-- This is true. We conduct breakeven to avoid loss so we know how much to produce

7. Comparing a capitated environment to a fee-for-service environment; in a capitated environment:
a. Each additional visit creates costs without a corresponding increase in revenues
b. The total revenues line on a CVP graph is flat rather than upward sloping <-- This would be true. In capitation, the doctor or group of doctors is paid per number of people covered, whether or not they seek medical care. The doctor receives a flat amount based on number insured regardless of the number of people he/she actually renders services to
c. Less utilization rather than more utilization enhances profitability
d. Providers of health services also take on an insurance function
e. All of the above

8. In a multi-service facility, which of the following is direct cost?
a. Electricity
b. Custodial services
c. Depreciation on the building,
d. Nurse pay in one department <-- This is a direct cost in a multi-service facility
e. All of ...

$2.19