HSM-340 Health Services Finance Midterm Exam Answers


Question 1.1. (TCO 4) Which of the following is part of a statistics budget? (Points : 5)

Output expectations
Responsibility for estimation
Estimation methodology
All of the above


Question 2.2. (TCO 4) Which budgetary issue causes the most strife in all areas of a health care organization? (Points : 5)

Setting volume levels
Setting prices
Allocation of indirect costs
Deciding whether to use a fixed or flexible budget


Question 3.3. (TCO 4) Effectiveness is a relationship between: (Points : 5)

Outputs and organizational goals
Inputs and outputs
Inputs and organizational goals
None of the above.


Question 4.4. (TCO 3) Estimate the total variable cost (i.e., including both routine and ancillary) per MSDRG 505 using the departmental cost/charge ratios and variable cost percentages. (Your answer might be slightly different due to rounding. Pick the closest.) (Points : 5)



Question 5.5. (TCO 3) Your controller has told you that the marginal profit of DRG 209 (major joint procedure) for a Medicare patient exceeds the marginal profit for an average charge patient. Why might this occur? (Points : 5)

High fixed costs of treatment
Low Medicare payment
High prices
Low prices


Question 6.6. (TCO 2) A statement that reports the financial position (assets, liabilities, and stockholders’ equity) of an accounting entity at a point in time is called a(an): (Points : 5)

Income statement
Statement of retained earnings
Balance sheet
Statement of cash flows
Report of management



Question 7.7. (TCO 2) Which of the following is the BEST example of a financial metric? (Points : 5)

Degree of innovation
Employee empowerment
Accreditation by the Joint Commission on Accreditation of Healthcare Organizations
Total margin
Length of stay


1. (TCO 4) Based on the below information, what dollar effect did the increased admission rate have on cost?

You have been asked by management to explain the variances in costs under your inpatient capitated contract. The following data is provided. Use the following data to calculate the variances.
Budget Actual
Inpatient Costs $12,568,500 $16,618,350
Members 42,000 42,000
Admission Rate 0.070 0.095
Case Mix Index 0.90 0.85

(Points : 10)



Question 2.2. (TCO 4) Based on the information below, what rate must be set to generate the required $80,000 in profit in the preceding example?
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:

Budgeted Procedures $10,000
Budgeted Cost $400,000
Desired Profit $80,000


(Points : 10)



Question 3.3. (TCO 4) What is the amount of variance that is attributed to the change in labor productivity?
Use the following data to calculate the variances.
The following information has been prepared for a home health agency.

Budget Actual
Wage Rate per Hour $16.00 $17.00
Fixed Hours 320 320
Variable Hours per Relative
Value Unit (RVU)
1.0 1.1
Relative Value Units (RVUs) 1,000 1,200
Total Labor Hours 1,320 1,640
Labor Costs $21,120 $27,880
Cost per RVU $21.12 $23.23

Budgeted costs at actual volume would be $25,344 ($21.12 × 1,200), and the total variance to be explained is $2,536 Unfavorable ($27,880 – $25,344). Be sure to specify whether the variance is favorable or unfavorable. (Points : 5)
DL Rate Variance = ( SR ? AR ) × AH



SR is the standard direct labor rate

AR is the actual direct labor rate

AH are the actual direct labor hours





Question 4.4. (TCO 2) How are revenues and expenses defined under accrual accounting? (Points : 5)



Question 5.5. (TCO 2) What are the double-entry accounting system and the duality concept? How are they related? (Points : 5)