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Finance Flashcards

Finance and Accounting Quiz 3

Which of the following statements about managerial accounting is incorrect? Managerial accounting information is prepared in accordance with rules established by outsiders (generally accepted accounting principles).
Which of the below statements about cost allocation is most correct? The reciprocal method is conceptually the best but typically the most expensive to implement.
Which of the following statements about cost allocation is most correct?1.The direct method of allocation recognizes services provided by support departments to one another.2. A cost driver is any grouping of overhead costs that must be allocated.3.The reciprocal method of allocation represents a compromise between the direct method and the step-down method.4.A cost pool is the total amount of direct costs incurred by one of the patient service departments. None of the above statements is correct
Effective cost drivers should have which of the following characteristics? They should be perceived as being fair.They should create an incentive for cost reduction.(Both A and B)
Which of the following statements about activity-based costing (ABC) is most correct? It is most useful for assigning costs to individual services.
Which of the following statements about relevant range is most correct? It is the range of output (volume) for which the organization’s cost structure holds.
True or false: In general, the best way to allocate costs in a large organization is to assign all overhead expenses to a single cost pool with one cost driver. False
True or false: The relationship between costs and the volume of services provided is called underlying cost structure. True
True or false: The goal (purpose) of cost allocation is to assign all overhead costs to the activities (departments) that cause the costs to be incurred. True
True or false: In economics, the situation in which average cost (per unit of output) declines as volume increases is known as economies of scope. False
Which of the following pricing strategies is most likely to lead to long-term financial sustainability? Full cost
Which of the following strategies is most likely to ensure profitability on a contract undertaken by a price-taker provider? Target costing
Which of the following statements best describes the contribution margin? The contribution margin is the dollar amount of each unit of output that is available first to cover fixed costs and then to contribute to profit.
Which of the following statements regarding the relationship between reimbursement method and risk is/are most correct? Under capitation, risk is reduced by maximizing the percentage of fixed costsUnder fee for service, risk is reduced by maximizing the percentage of variable costs.(Answers A and D are correct)
When a provider has market dominance and hence can set its own prices (within reason), it is called a price taker. False
Under full-cost pricing, prices are set to cover all costs, including economic costs (profits). True
Under capitation, the contribution margin is negative when volume is measured by units of output (per visit, per procedure, per patient day, and so on). True
Utilization management is more important for capitated patients than for fee-for-service patients. True

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