Multiple Choice

1. Given the characteristics of good cost drivers, which of the following cost drivers is likely the most effective for allocating housekeeping costs to patient service departments?

A. The space (square-footage) occupied by each department

B. The revenues generated by each department

C. The salary expense of each department

D. The number of hours of housekeeping services consumed by each department

2. True or false? The classification of costs as direct or indirect depends on the department of reference (e.g., the unit of analysis).

A. True

B. False

3. Mercy Hospital operates an on-site laboratory. Total (fully-allocated) costs associated with the laboratory are $500,000. Of the $500,000 in full costs, Mercy estimates that $350,000 could be eliminated if the laboratory were closed. Which of the amounts below reflects the indirect costs allocated to the laboratory?

A. $500,000

B. $350,000

C. $150,000

D. $850,000

E. Can't tell from the information provided

4. If the allocation sequence (i.e., order of allocation) is changed in a step-down cost allocation, which of the following will be affected? For this question only, choose all answers that apply.

A. Support department direct costs

B. Indirect costs allocated to support departments

C. Patient service department direct costs

D. Indirect costs allocated to patient service departments

E. Total costs of the organization (all departments combined including both support and patient service departments)

5. Assume a clinical laboratory is considering a new test. Here are the key assumptions: Annual fixed direct costs = $20,000 Annual fixed overhead allocation = $10,000 Variable cost per test = $5 Expected volume = 5,000 tests. What price per test should be set in order for the laboratory to break even on the test (earn zero profit)?

A. $5 per test

B. $7 per test

C. $9 per test

D. $11 per test

E. $13 per test

6. The operating budget is most like which of the following financial statements (from financial accounting)?

A Balance sheet

B. Income statement

C. Statement of cash flows

D. Statement of changes in net assets (owners' equity)

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Please answer the questions 7-9 below according to the info provided:

University Hospital has three support departments: finance, facilities and general administration, and four patient service departments: medicine, surgery, critical care and burn care. The results (outcome) of a step-down cost allocation for University Hospital presented below:

Finance costs allocated to:

Medicine = $10,000

Surgery = $12,000

Critical care = $5,000

Burn care = $3,000

Facilities costs allocated to:

Finance = $1,000

Medicine = $5,500

Surgery = $9,500

Critical care = $3,000

Burn care = $1,000

General administration costs allocated to:

Facilities = $4,000

Finance = $2,000

Medicine = $7,000

Surgery = $6,000

Critical care = $2,500

Burn care = $1,500

Answer the following:

7. What was the order of allocation in the step-down cost allocation?

A. Finance, Facilities, General Administration

B. Facilities, finance, general administration

C. General administration, finance, facilities

D. General administration, facilities, finance

E. The order of allocation cannot be determined from the information provided

8. Given the information above, choose the answer that best completes the following sentence. If University Hospital closed its burn care unit (i.e., divested the service line), the full costs (in the short-term) of the remaining service lines (medicine, surgery and critical care) would most likely _______________.

A. Increase

B. Decrease

C. Stay the same

D. Change, but the direction of the change is ambiguous given the information provided

9. What were the total direct costs (the sum of the original cost pools) for all of the support centers combined (finance, facilities and general administration)?

A. $73,000

B. $69,000

C. $68,000

D. $67,000

E. $66,000