HEALTHCARE FINANCE TOPIC

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1. Wellspring Clinic has two patient services departments: Medicine and Surgery. The patient services departments are supported by the Housekeeping, Financial Services, and Administration departments. The Administration Department of Wellspring Clinic has compiled the following information Department Housekeeping Administration Financial Services Medicine Surgery No. of Employees Direct Costs $200,000 400,000 300,000 1,000,000 $1,500,000 Square Feet 3,000 5,000 2,000 53,000 40,000 250 500 100 2,600 2,300 Wellspring has determined that the cost driver for housekeeping is square feet and that the cost driver for Administration and Financial Services is the number of employees. Using the direct method of cost allocation, what is the approximate allocation rate for housekeeping costs (round to the nearest cent)? a. $2.15 b. $1.94 c. $2.11 d. $2.00 e. $5.00 2. True or False: When the cost driver is changed, support department cost allocations to revenue-generating departments will change under the step-down method of cost allocation but not under the direct method of cost allocation a. True b. False 3. Which of the following pricing strategies is most likely to lead to long-term financial sustainability? a. Full cost b. Marginal cost c. Direct cost d. Indirect cost e. Variable cost 4. Assume a clinical laboratory is considering a new test. Here are the key assumptions Annual fixed direct costs - $20,000 Annual overhead allocation $10,000 Variable cost per test = $5 Expected volume = 5,000 tests What price should be set under full cost pricing? b. $7 C. d. $11 e. $13