Healthcare Accounting Cost Management & Budgeting Flashcards

Which cost behavior pattern describes costs that remain fixed within a certain range of activity but jump to a higher fixed level when activity exceeds that range?

Answer: Step-fixed costs

Step-fixed (step costs) remain constant within relevant ranges but increase in steps as activity levels cross thresholds, like hiring an additional nurse when census rises.

A clinic's operating room has fixed costs of $800,000 and variable costs of $200 per procedure. If 4,000 procedures are performed, what is the total cost?

Answer: $1,600,000

Total cost = Fixed + Variable = $800,000 + ($200 × 4,000) = $800,000 + $800,000 = $1,600,000.

In healthcare cost accounting, the 'relative value unit' (RVU) is primarily used to:

Answer: Allocate physician compensation and resource consumption

RVUs quantify the resources (work, practice expense, malpractice) associated with a service, used for physician compensation models and cost allocation.

Which budgeting approach produces a new 12-month budget each month by adding a new future month as the most recent month expires?

Answer: Rolling (continuous) budgeting

Rolling (continuous) budgeting maintains a constant forward-looking horizon by adding a new period as each period closes.

A hospital is evaluating two cost drivers for overhead allocation. Driver A explains 85% of overhead cost variation; Driver B explains 60%. Which should be preferred and why?

Answer: Driver A, because it has higher explanatory power (R²)

The cost driver with the highest R² (explanatory power) produces the most accurate cost allocations; Driver A at 85% is superior.

Under the Medicare Prospective Payment System (PPS), hospitals are paid based on:

Answer: A predetermined rate per Diagnosis-Related Group (DRG)

Medicare PPS pays hospitals a fixed amount per DRG regardless of actual costs, incentivizing efficiency in cost management.

Which of the following is an example of a capital budget item in a healthcare organization?

Answer: Purchase of a new MRI scanner costing $1.5 million

Capital budgets cover long-lived assets (typically over a set threshold such as $5,000 or more) like major equipment, buildings, and technology infrastructure.