HAC Healthcare Accounting Cost Management & Budgeting 3 — Questions and Answers
Question 1: 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?
- Variable costs
- Mixed costs
- Step-fixed costs (Correct answer)
- Sunk costs
Correct 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.
Question 2: 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?
- $800,000
- $1,000,000
- $1,600,000 (Correct answer)
- $2,400,000
Correct answer: $1,600,000
Total cost = Fixed + Variable = $800,000 + ($200 × 4,000) = $800,000 + $800,000 = $1,600,000.
Question 3: In healthcare cost accounting, the 'relative value unit' (RVU) is primarily used to:
- Measure patient satisfaction scores
- Allocate physician compensation and resource consumption (Correct answer)
- Calculate insurance premium rates
- Determine bed capacity utilization
Correct 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.
Question 4: Which budgeting approach produces a new 12-month budget each month by adding a new future month as the most recent month expires?
- Static budgeting
- Zero-based budgeting
- Rolling (continuous) budgeting (Correct answer)
- Program budgeting
Correct answer: Rolling (continuous) budgeting
Rolling (continuous) budgeting maintains a constant forward-looking horizon by adding a new period as each period closes.
Question 5: 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?
- Driver B, because it is simpler to track
- Driver A, because it has higher explanatory power (R²) (Correct answer)
- Neither, because only patient volume should be used
- Driver B, because lower correlation reduces bias
Correct 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.
Question 6: Under the Medicare Prospective Payment System (PPS), hospitals are paid based on:
- Actual costs incurred for each patient
- A predetermined rate per Diagnosis-Related Group (DRG) (Correct answer)
- A percentage of the hospital's gross charges
- Monthly capitation payments per enrolled member
Correct 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.
Question 7: Which of the following is an example of a capital budget item in a healthcare organization?
- Monthly pharmaceutical supply order
- Nurse overtime pay for a busy weekend
- Purchase of a new MRI scanner costing $1.5 million (Correct answer)
- Annual malpractice insurance premium
Correct 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.
HAC Healthcare Accounting Cost Management & Budgeting 3
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?