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LSUS MHA 706 FINAL EXAM 2024 |
FINANCIAL MANAGEMENT MIDTERM
| ALL QUESTIONS AND CORRECT
ANSWERS | ALREADY GRADED A+ |
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As an Accounting Manager - you are responsible for allocating the cost of Facilities to other departments. What would be an appropriate cost driver for you to use for this allocation. -----CORRECT ANSWER------------------Square footage of the department Once a company uses the direct method to allocate indirect costs to revenue-producing departments within the facility - the total level of expenses decreases for the organization. -----CORRECT ANSWER------------------False When using the direct cost allocation system - often you are allocating the cost of xxxx to Patient Service Departments -----CORRECT ANSWER------------------Support (overhead) departments Select all of the following options that are accounting methods to account for "costs" at an individual service level -----CORRECT ANSWER------------------Activity Based Costing (ABC) Relative Value Unit (RVU) Time-Driven Activity Based Costing (TDABC) Cost-to-Charge Ratio (CCR) Select all of the true assumption(s) of the Cost-to-Charge Ratio Method. -----CORRECT ANSWER------------------Each service consumes overhead costs in the same proportion as the department as a whole Charges reflect the level of intensity of the service provided
Activity based costing (ABC) begins with the ..... that comprise the service provided. ----- CORRECT ANSWER------------------Individual Activities The key to cost allocation under Activity-Based-Costing is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities. The steps required to implement ABC are as follows: -----CORRECT ANSWER------------------Collect- activity data for each service Identify- the relevant activities Estimate- the cost of each activity Assign- cost drivers for each activities Calculate- the total costs of the service by aggregating activity costs One use of managerial accounting information within a health service organization is to... -----CORRECT ANSWER-------------------Determine the profitability of different service lines
- Identify the lowest feasible price when prices are negotiated
- Set prices on services When a provider has market dominance, and can set its own prices (within reason), it is said to be a price setter. In other situations, providers are price takers. Select the responses that may describe a situation where a provider is a "price-taker." ----- CORRECT ANSWER-------------------There is payer dominance
- It is a perfectly competitive market
- The provider is dealing with a government payer/program Under marginal cost pricing, prices for a service are set to cover .... costs ----- CORRECT ANSWER------------------incremental When you divide the "Dollars in the Cost Pool" by "Total Volume of Cost Driver" - you have determined .... -----CORRECT ANSWER------------------The Allocation Rate Effective cost drivers should have the following characteristic(s) -----CORRECT ANSWER-------------------Perceived as being fair
- Promote Organizational Cost Reduction
Indirect Costs -----CORRECT ANSWER------------------Are costs associated with shared resources used by the entire organization Cost Driver -----CORRECT ANSWER------------------Is the basis on which the cost pool will be allocated Cost Pool -----CORRECT ANSWER------------------Is the overhead amount to be allocated Overhead departments -----CORRECT ANSWER------------------Are often called costs centers Patient Service Departments -----CORRECT ANSWER------------------Are often called revenue centers Direct Costs -----CORRECT ANSWER------------------Are costs unique and exclusive to a department Interest Rate -----CORRECT ANSWER------------------is the bond's required rate of return call provision -----CORRECT ANSWER------------------permits the borrower to redeem the debt prior to maturity Debt Ratings -----CORRECT ANSWER------------------reflect the probability of default Long-term bonds have high price risk but -----CORRECT ANSWER------------------low reinvestment rate risk
Nothing -----CORRECT ANSWER------------------is risk-less! Remember that any investment has risk Short-term bonds have low price risk but -----CORRECT ANSWER------------------high reinvestment rate risk Debt service requirements -----CORRECT ANSWER------------------Reflects mandatory requirements of the debt issue, concerning issues, such as, total debt service payments, interest expense, and repayment of principle New versus seasoned bonds -----CORRECT ANSWER------------------When market conditions change, the value of outstanding bonds change Maturity Date -----CORRECT ANSWER------------------Date when the par value will be repaid to investors Par Value -----CORRECT ANSWER------------------Stated face value of the bond Coupon Rate -----CORRECT ANSWER------------------Stated interest rated on the bond At maturity, a bond's value must equal its par value (plus final interest payments). ----- CORRECT ANSWER------------------true A par bond value -----CORRECT ANSWER------------------will remain at par if interest rates remain constant
Dividend valuation model -----CORRECT ANSWER------------------the value of a share of stock is the present value of the expected cash flow stream to shareholders Young businesses -----CORRECT ANSWER------------------can be valued on the basis of their expected operating cash flows If dividends are expected to grow at a constant rate forever, then the general stock valuation model can be simplified to what model? -----CORRECT ANSWER---------------- --Constant Growth Model Do -----CORRECT ANSWER------------------is the last dividend paid R(Re) -----CORRECT ANSWER------------------is the stock's required rate of return E(g) -----CORRECT ANSWER------------------is the expected constant dividend growth rate E(Po) -----CORRECT ANSWER------------------is the value of the stock E(D1) -----CORRECT ANSWER------------------is the next expected dividend (assumed to be received in one year) Dividend growth is caused primarily by.... -----CORRECT ANSWER------------------ Inflation, Earnings retention Select all the conditions that are associated with the Constant Growth Stock Model ----- CORRECT ANSWER------------------The dividend is expected to grow at a constant rate forever.
The stock price is expected to grow at the same rate. The expected dividend yield is constant over time. The expected capital gains yield is a constant equal to the growth rate. Most "real world" dividend-paying stocks do exhibit constant growth. -----CORRECT ANSWER------------------False Investors will buy a security when its .... -----CORRECT ANSWER------------------ Expected rate of return exceeds the required rate of return, Value exceeds the current price A market is informationally efficient if... -----CORRECT ANSWER------------------Relevant information about asset values can be easily obtained at low cost. The market contains many buyers and sellers who act on the information The operating or five-year plan lays out the organization's goals and .... -----CORRECT ANSWER------------------objectives What are the common kinds of budgets and control mechanisms needed in an organization? -----CORRECT ANSWER------------------Statistics budget, Revenue budget, Expense budget, Operating budget Budgets can be used for all the following.... -----CORRECT ANSWER------------------ Communication, Control, Planning Revenue budget -----CORRECT ANSWER------------------is used to forecast revenues Statistics budget -----CORRECT ANSWER------------------is referred to as the "foundation" budget
Price Variance -----CORRECT ANSWER------------------difference between actual price and standard price Revenue Variance -----CORRECT ANSWER------------------Actual Revenues - Static Revenues Cost Variance -----CORRECT ANSWER------------------Static Costs - Actual Costs Volume Variance -----CORRECT ANSWER------------------Flexible Revenues - Static Revenues Management Variance -----CORRECT ANSWER------------------Flexible Costs - Actual Costs Supplies Variance -----CORRECT ANSWER------------------Flexible Supplies Cost - Actual Supplies Cost Labor Variance -----CORRECT ANSWER------------------Flexible Labor Cost - Actual Labor Cost Variance analysis is an attempt to better explain and understand differences in expected performance and actual performance. -----CORRECT ANSWER------------------ True Capital budgeting decisions are ..... -----CORRECT ANSWER------------------the acquisition of land, buildings and equipment, very important managerial decisions, can involve large sums of money, are costly to reverse,
define the strategic direction of the business Proposed projects are classified according to.... -----CORRECT ANSWER------------------ purpose and size These are the steps associated with capital budgeting financial analysis. -----CORRECT ANSWER------------------Measure โ the financial impact, Estimate the project's cost of โ capital, Estimate โ the cash flows, Assess โ the project's riskiness In cash flow estimation, there is a focus on ..... cash flow. -----CORRECT ANSWER------ ------------incremental What is the one item that needs to be excluded from any capital budgeting decision? ----
- CORRECT ANSWER------------------sunk costs Advantages of Payback is that it is easy to calculate and -----CORRECT ANSWER------- -----------understand Disadvantages of Payback is that ignores the -----CORRECT ANSWER------------------ time value Disadvantages of Payback -----CORRECT ANSWER------------------Ignores all cash flows that occur after the payback period Advantages of Payback is that it provides an indication of a project's -----CORRECT ANSWER------------------risk and liquidity
cost pool -----CORRECT ANSWER---------------Overhead amount to be allocated. Consists of the direct costs of one overhead department cost driver -----CORRECT ANSWER---------------The basis on which a cost pool is allocated; for example, square footage for facilities costs. Direct Method -----CORRECT ANSWER---------------Cost allocation method in which the costs of each support department are allocated directly to, and only to, the patient services department Step-down method -----CORRECT ANSWER---------------a cost allocation method that recognizes some of the overhead services provided by one support department to another Reciprocal Method -----CORRECT ANSWER---------------A method that simultaneously allocates service costs to all user departments. It gives full consideration to interactions among support departments. Charge-to-cost ratio (CCR) -----CORRECT ANSWER---------------ties overhead resource consumption to charges (or revenues) Relative Value Unit (RVU) -----CORRECT ANSWER---------------ties the use of overhead resources to the complexity and time required for each service as measured by RVUs Activity-based costing (ABC) -----CORRECT ANSWER---------------A method of cost accounting designed to identify streams of activity and then to allocate costs differently in different service lines price setter -----CORRECT ANSWER---------------provider has market dominance and can set it's own prices
price takers -----CORRECT ANSWER---------------perfectly competitive markets, payer dominance, government programs Full-cost pricing -----CORRECT ANSWER---------------Prices are set to cover all costs associated with providing a particular service (direct and indirect costs), typically adds a profit component marginal cost pricing -----CORRECT ANSWER---------------prices for a service are set to cover incremental, or marginal, costs (generally recovering only direct variable costs) target costing -----CORRECT ANSWER---------------revenues are projected assuming prices as given in the marketplace, required profits are subtracted from revenues, remainder is target cost level term loan -----CORRECT ANSWER---------------a bank loan that lasts for a specific term term loan examples -----CORRECT ANSWER---------------student loans, mortgage Treasury Bonds -----CORRECT ANSWER---------------Bonds issued by the federal government, sometimes referred to as government bonds. Corporate Bonds -----CORRECT ANSWER---------------bonds issued by for-profit corporations mortgage bond -----CORRECT ANSWER---------------a bond secured by a lien on real property
speculative bonds -----CORRECT ANSWER---------------sometimes called junk bonds, have a higher probability of default, and thus a higher rate of interest. These bonds would be attractive to investors who have a high tolerance for risk, but would not be held by companies with fiduciary obligations, such as pension funds. lower bond rating -----CORRECT ANSWER---------------investors will want a higher return on their investment required rate of return -----CORRECT ANSWER---------------the interest rate on debt real risk-free rate (RRF) -----CORRECT ANSWER---------------rate of return an investor would require if there was almost no risk and no expectation of inflation Inflation Premium (IP) -----CORRECT ANSWER---------------influenced by expectations of inflation that investors have Default Risk Premium (DRP) -----CORRECT ANSWER---------------affected by credit ratings that an organization has Liquidity Premium (LP) -----CORRECT ANSWER---------------how quickly the bond can be sold in the market Price risk premium (PRP) -----CORRECT ANSWER---------------if interest rates go up, the market value of the bond may go down Call risk premium (CRP) -----CORRECT ANSWER---------------risk of bond being called before it matures, only applies if the bond has a call provision
par value -----CORRECT ANSWER---------------stated face value of the bond, generally the amount borrowed and repaid at maturity coupon rate -----CORRECT ANSWER---------------the stated rate of interest on bonds, usually fixed maturity date -----CORRECT ANSWER---------------date when the par value will be repaid to investors, declines each year after issue new bond -----CORRECT ANSWER---------------first issued Seasoned Bond -----CORRECT ANSWER---------------Bond traded from one investor to another, already in the market General Valuation Model -----CORRECT ANSWER---------------the financial value of any asset stems from the asset's expected cash flows General Valuation Model -----CORRECT ANSWER---------------estimate expected cash flows, assess their riskiness, set the required rate of return, discount the cash flows and sum the present values bond value decreases -----CORRECT ANSWER---------------as interest rate increases bond value increases -----CORRECT ANSWER---------------if interest rate decreases
price risk (interest rate risk) -----CORRECT ANSWER---------------the risk of a decline in a bond's price due to an increase in interest rates reinvestment rate risk -----CORRECT ANSWER---------------the risk that a decline in interest rates will lead to lower income when bonds mature and funds are reinvested greater -----CORRECT ANSWER---------------the shorter the maturity, the ___________ greater the reinvestment risk dividend valuation model -----CORRECT ANSWER---------------the value of a share stock is the present value of the expected cash flow stream to shareholders, includes dividends and a future selling price constant growth model -----CORRECT ANSWER---------------dividends are expected to grow at a constant rate forever Strategic Planning -----CORRECT ANSWER---------------foundation of the planning process; contains values statement, mission statement, vision statement; high-level, abstract goals operating plan -----CORRECT ANSWER---------------five year plan, lays out tangible goals and objectives, provides guidance needed to meet the goals and objectives budget -----CORRECT ANSWER---------------detailed plan that specifies how resources will be used Budgets are used for -----CORRECT ANSWER---------------Planning Communication Control
Budgets are -----CORRECT ANSWER---------------managerial tools Statistics budget -----CORRECT ANSWER---------------the foundation budget that develops the input data needed for the other budgets statistics budgets forecast -----CORRECT ANSWER---------------volume of services provided, resources needed to provide those services revenue budget -----CORRECT ANSWER---------------combinines volume data from the statistics budget with reimbursement expectations to forecast revenues expense budget -----CORRECT ANSWER---------------combines volume data with detailed resource utilization data to forecast expenses operating budget -----CORRECT ANSWER---------------combines information from the revenue and expense budgets, focuses on projected profitability Zero-based budgeting -----CORRECT ANSWER---------------each new budget is started from scratch Conventional Budgeting -----CORRECT ANSWER---------------the old budget is the starting point, typically only small changes are made, changes are often airsoft equally bottom-up budgets -----CORRECT ANSWER---------------Begin at sub-unit (departmental) level. Are reviewed and compiled by the finance department. Are approved by senior management.
