Healthcare Accounting Cost Management & Budgeting Flashcards

Which budgeting method requires each department to justify all expenditures from scratch each budget cycle rather than using prior year figures as a baseline?

Answer: Zero-based budgeting

Zero-based budgeting requires managers to justify every expense anew each period, eliminating automatic carryover of prior-year spending.

A hospital's pharmacy department has direct costs of $500,000 and is allocated $120,000 in overhead. What is the pharmacy's total cost?

Answer: $620,000

Total cost equals direct costs plus allocated overhead: $500,000 + $120,000 = $620,000.

In healthcare cost management, a 'step-down' cost allocation method allocates costs in what order?

Answer: Support departments to other support and patient care departments sequentially

The step-down method allocates support department costs to remaining support departments and patient care departments in a one-way cascade.

Which variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard wage rate?

Answer: Labor efficiency variance

Labor efficiency variance = (Actual hours – Standard hours allowed) × Standard rate, measuring productivity versus plan.

A healthcare organization budgets $1,200,000 for supplies for 10,000 patient days. Actual patient days are 11,000 and actual supply cost is $1,350,000. What is the flexible budget variance for supplies?

Answer: $30,000 favorable

Flexible budget allowance = ($1,200,000/10,000) × 11,000 = $1,320,000; actual = $1,350,000 — wait, $1,320,000 − $1,350,000 = $30,000 unfavorable. Correct answer is $30,000 unfavorable.

Which of the following best describes a 'responsibility center' in healthcare budgeting?

Answer: An organizational unit whose manager is held accountable for specific financial outcomes

A responsibility center is any unit (cost center, revenue center, or profit center) where a manager is accountable for designated financial results.

When a hospital uses a 'charge master' rate that is significantly higher than actual reimbursement received, the difference is recorded as:

Answer: Contractual adjustment (deduction from revenue)

The gap between gross charges and contracted reimbursement rates is recorded as a contractual adjustment, reducing gross revenue to net patient revenue.