HAC Healthcare Accounting Cost Management & Budgeting 2 — Questions and Answers
Question 1: Which budgeting method requires each department to justify all expenditures from scratch each budget cycle rather than using prior year figures as a baseline?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Rolling budgeting
- Activity-based budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires managers to justify every expense anew each period, eliminating automatic carryover of prior-year spending.
Question 2: 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?
- $380,000
- $500,000
- $620,000 (Correct answer)
- $720,000
Correct answer: $620,000
Total cost equals direct costs plus allocated overhead: $500,000 + $120,000 = $620,000.
Question 3: In healthcare cost management, a 'step-down' cost allocation method allocates costs in what order?
- Patient care departments first, then support departments
- Support departments to other support and patient care departments sequentially (Correct answer)
- Equally across all departments simultaneously
- Only to revenue-generating departments
Correct 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.
Question 4: Which variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard wage rate?
- Labor rate variance
- Labor efficiency variance (Correct answer)
- Volume variance
- Spending variance
Correct answer: Labor efficiency variance
Labor efficiency variance = (Actual hours – Standard hours allowed) × Standard rate, measuring productivity versus plan.
Question 5: 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?
- $30,000 favorable (Correct answer)
- $30,000 unfavorable
- $150,000 unfavorable
- $150,000 favorable
Correct 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.
Question 6: Which of the following best describes a 'responsibility center' in healthcare budgeting?
- A government agency that regulates hospital spending
- An organizational unit whose manager is held accountable for specific financial outcomes (Correct answer)
- A committee that approves capital expenditure requests
- A cost pool used for overhead allocation
Correct 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.
Question 7: When a hospital uses a 'charge master' rate that is significantly higher than actual reimbursement received, the difference is recorded as:
- Bad debt expense
- Contractual adjustment (deduction from revenue) (Correct answer)
- Operating expense
- Deferred revenue
Correct 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.
