HC Finance Study Guide

# What is the primary benefit of target costing profit

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Unformatted text preview: r a complex set of iterative calculations o Direct Method (direct cost allocation): big example in slides Activity- Based Costing: begins with the individual activities that compose the services provided In class review- - Organizational goals are short term while organizational objectives are longer term FALSE - Organizational objectives are quantitative targets TRUE (Goals are more qualitative, you can have around longer – objectives change more frequently) - Variance analysis is the difference between expected value and the budgeted value FALSE - In simple budgeting estimated volumes are used while in flexible budgeting actual volumes are used TRUE - Ashley, an individual investor with a 24% tax rate, buys one \$5,000 bond from a for- profit hospital, which offers a 5% interest rate on its new bonds. Calculate Ashley’s effective (after- tax) annual interest- 5% x 5,000 = 250 76% x 250 = \$190 - Same question- what is the effective interest rate? 5% x .76 = 3.8% - Accounting breakeven is equivalent to the economic breakeven point FALSE - Zero based budgeting: Is superior to conventional budgeting - The operating budget is a combination of the revenue and expense budget TRUE CHAPTER 5 – PRICING DECISIONS & PROFIT ANALYSIS Pricing o Decisions o Strategies Profit analysis o Fee for service o Capitation Impact of cost structure on risk Introduction One use of managerial accounting information within health services organizations is to: o Set the prices (and discounts) on services offered under charge-based reimbursement. o Determine the financial impact of services offered when prices are dictated. o Identify the lowest feasible price when prices are negotiated. In addition, cost and price information can be combined to conduct profit analyses. Price Setters Vs. Takers When a provider has market dominance, and hence can set its own prices (within reason), it is said to be a price setter. In other situations, providers are price takers: o Perfectly competitive markets o Payer dominance o Government (take it or leave it) programs However, in many situations providers are neither pure price takers nor price setters and room for negotiation exists. Price Setting Strategies When a provider is a price setter (or when negotiation is possible), there are several theoretical bases upon which prices can be set. The two most common are: o Full cost pricing o Marginal cost pricing Under full cost pricing, prices fo...
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