Healthcare Accounting Cost Management & Budgeting Flashcards

A healthcare CFO notices that actual supply costs per adjusted patient day are $45 versus a budget of $40. This $5 difference is best described as a:

Answer: Rate (price) variance

A rate (price) variance occurs when the actual cost per unit differs from the budgeted cost per unit for the same volume.

Which transfer pricing method sets the internal price for interdepartmental services equal to what an outside vendor would charge?

Answer: Market-based transfer pricing

Market-based transfer pricing uses external market rates, ensuring internal pricing reflects competitive benchmarks.

In a healthcare organization, 'contribution margin' is calculated as:

Answer: Net revenue minus total variable costs

Contribution margin = Net revenue − Variable costs; it represents the amount available to cover fixed costs and generate profit.

A hospital has fixed costs of $5,000,000, a contribution margin ratio of 40%, and desires a net income of $600,000. What is the required revenue?

Answer: $14,000,000

Required revenue = (Fixed costs + Target profit) / CM ratio = ($5,000,000 + $600,000) / 0.40 = $14,000,000.

Which healthcare costing method traces overhead costs to activities and then to cost objects, improving accuracy for complex multi-service organizations?

Answer: Activity-based costing (ABC)

ABC assigns overhead to activities (e.g., patient admission, lab testing) and then to cost objects based on actual activity consumption, improving accuracy.

When preparing an operating budget, which document should typically be completed first?

Answer: Volume (statistics) budget

The volume (statistics) budget — projected patient days, visits, or procedures — drives all other budgets since staffing and supply needs depend on anticipated volume.

A health system's department manager receives a performance report showing $50,000 in allocated corporate overhead charges. Under a cost center accountability model, this manager should be evaluated on:

Answer: Only the costs directly controllable by the manager

Managers should only be held accountable for costs they can actually control; allocated overhead from other departments is not controllable at the department level.