CHE Financial Management 2 — Questions and Answers
Question 1: Which costing method allocates overhead costs based on the actual activities that consume resources?
- Cost-volume-profit analysis
- Activity-based costing (ABC) (Correct answer)
- Standard costing
- Marginal costing
Correct answer: Activity-based costing (ABC)
Activity-based costing allocates overhead and indirect costs to services based on the specific activities that drive resource consumption, providing more accurate cost data.
Question 2: In healthcare revenue cycle management, the 'clean claim rate' measures:
- Percentage of patients who pay their bills
- Percentage of claims submitted without errors that don't require additional information before payment (Correct answer)
- Rate of patient complaints about billing
- Percentage of claims denied by insurers
Correct answer: Percentage of claims submitted without errors that don't require additional information before payment
The clean claim rate is the percentage of claims that pass all edits and are accepted for processing without requiring additional information or correction.
Question 3: A break-even analysis for a new healthcare service determines:
- The maximum profit a service can generate
- The volume of services needed to cover all fixed and variable costs with no profit or loss (Correct answer)
- The optimal staffing level for the service
- The market demand for the new service
Correct answer: The volume of services needed to cover all fixed and variable costs with no profit or loss
Break-even analysis calculates the minimum volume or revenue at which total costs exactly equal total revenue, resulting in neither profit nor loss.
Question 4: Uncompensated care in hospitals includes which two components?
- Medicaid shortfalls and Medicare shortfalls
- Charity care (free care to the uninsured) and bad debt (unpaid bills) (Correct answer)
- Employee benefits and malpractice costs
- Research costs and teaching program costs
Correct answer: Charity care (free care to the uninsured) and bad debt (unpaid bills)
Uncompensated care consists of charity care provided without expectation of payment and bad debt from patients who had financial responsibility but did not pay.
Question 5: A healthcare organization's debt-to-equity ratio measures:
- How much revenue is needed to service debt
- The proportion of financing from creditors relative to the organization's own resources (Correct answer)
- Profitability relative to total assets
- Daily operating cash needs
Correct answer: The proportion of financing from creditors relative to the organization's own resources
The debt-to-equity ratio measures how much an organization relies on debt financing compared to equity (net assets), indicating financial leverage and risk.
Question 6: The purpose of a pro forma financial statement in healthcare planning is to:
- Report historical financial performance
- Project future financial outcomes based on assumptions and scenarios (Correct answer)
- Satisfy external audit requirements
- Calculate physician compensation
Correct answer: Project future financial outcomes based on assumptions and scenarios
Pro forma statements project future financial performance based on planned activities, assumptions about volume and reimbursement, and strategic initiatives.
CHE Financial Management 2
Which costing method allocates overhead costs based on the actual activities that consume resources?