Healthcare & Financial Cost Concepts

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Questions and Answers

Differentiate between direct healthcare costs and direct non-healthcare costs, providing an example of each within a hospital setting.

Direct healthcare costs are directly associated with providing medical care, like a surgeon's salary. Direct non-healthcare costs relate to health conditions but are not directly medical, such as patient transportation.

How do fixed costs and variable costs behave differently as production volume changes? Give an example of each for a manufacturing company.

Fixed costs remain constant regardless of production volume, like rent on a factory. Variable costs change proportionally with production, such as raw materials costs.

Explain the concept of 'opportunity cost' using the example of a hospital deciding whether to invest in a new MRI machine or expand its oncology department.

Opportunity cost is the potential benefit lost from choosing one investment over another. If the hospital invests in the MRI, the forgone returns from expanding oncology represent the opportunity cost.

Describe how 'cost drivers' are used in allocation methods and provide an example of a cost driver for allocating facility costs in a university.

Cost drivers are factors that influence the cost of an activity. For university facility costs, a cost driver could be the square footage occupied by each department. Signup and view all the answers

A company has total allocated costs of $500,000 and a total allocation base of 2,000 machine hours. Calculate the allocation rate and explain how it would be used.

The allocation rate is calculated as $500,000/2,000 = $250 per machine hour. This rate would be used to allocate costs to products or departments based on their machine hour usage. Signup and view all the answers

Briefly outline the three core phases of a strategic plan. How do these phases contribute to effective financial planning?

The three core phases are: financial vision and mission, financial goals and objectives, and financial action plans, monitoring and evaluation. These phases ensure financial planning aligns with the organization's overall strategy and performance is tracked. Signup and view all the answers

Explain the relationship between an organization's mission, values, and vision statements in the context of financial planning. How do these guide financial decisions?

The mission defines the organization's purpose, values set the ethical framework, and the vision outlines future aspirations. Together, they ensure financial decisions align with the organization's identity and long-term goals. Signup and view all the answers

Compare and contrast a top-down budget approach with a bottom-up budget approach. In what type of organizational structure is each most effective?

Top-down budgets are set by senior management and are best in centralized organizations. Bottom-up budgets involve input from lower-level managers and are suited for decentralized structures. Signup and view all the answers

Describe the purpose of a revenue budget and an expense budget. How do these budgets contribute to creating an operating budget?

A revenue budget estimates income, while an expense budget outlines expected costs. They combine to form an operating budget, projecting overall financial performance. Signup and view all the answers

Explain the concept of 'receivables management'. Why is effective receivables management critical for a business's cash flow?

Receivables management is the process of managing money owed to a business by its customers. Effective management ensures timely collection, which is critical for maintaining healthy cash flow. Signup and view all the answers

Describe what is meant by the 'accumulation of receivables.' How does tracking this metric assist in financial decision-making?

Accumulation of receivables refers to the amount of money owed to a business over time. Tracking it helps assess collection efficiency and informs decisions about credit policies. Signup and view all the answers

A company has $50,000 in opening accounts receivable and $70,000 in closing accounts receivable. Calculate the average accounts receivable and explain its significance.

Average accounts receivable is ($50,000 + $70,000) / 2 = $60,000. It indicates the average level of receivables outstanding, useful for assessing working capital management. Signup and view all the answers

What are the 'costs of carrying receivables'? Give two practical examples of such costs for a small retail business.

Costs of carrying receivables are the expenses incurred while waiting for payment. Examples include interest on debt used to finance receivables and administrative costs of tracking and collecting payments. Signup and view all the answers

Explain the concept of 'float' in financial transactions. Why is managing float important for a company's financial health?

Float is the time between when a transaction is initiated and when funds are available. Managing float is important for optimizing cash availability and investment opportunities. Signup and view all the answers

Briefly describe what 'float management' entails. Provide one strategy a company might use to reduce float time.

Float management is the strategic process of managing the time between payment and clearance. A strategy to reduce float is to encourage electronic payments. Signup and view all the answers

Describe the concept of 'supply chain management' and why it is important. How might poor supply chain management impact a healthcare provider?

Supply chain management is overseeing the flow of goods, services, information, and finances. Poor supply chain management can lead to shortages, increased costs, and compromised patient care in healthcare. Signup and view all the answers

What does 'outpatient revenue percentage' measure in a healthcare organization? How is it calculated.

Outpatient revenue percentage measures the proportion of total revenue from outpatient services. It's calculated as (total outpatient revenue / total patient revenue) * 100. Signup and view all the answers

What are Key Performance Indicators (KPIs)? Explain how KPIs assist in assessing the performance of a business. Provide an example of a KPI.

KPIs are measurable values indicating how well an individual or organization achieves a business objective. Improving customer satisfaction is an example of a KPI. Signup and view all the answers

How do price setters and price takers differ in their ability to influence market prices? Provide a real-world example of each.

Price setters can influence prices due to market power (e.g., a patented drug), while price takers have no influence (e.g., a small wheat farmer). Signup and view all the answers

Explain the concept of 'target costing'. How might a cell phone manufacturer use target costing when developing a new model?

Target costing determines the desired cost based on competitive prices and profit margin. A manufacturer might set a target cost for a new phone based on what customers are willing to pay. Signup and view all the answers

Flashcards

Direct Healthcare Costs

Expenses directly associated with providing medical care and services.

Direct Non-Health Care Costs

Expenses associated with health conditions or treatments NOT directly related to medical care.