Question

65.Which of the following statements about the step-down method of cost allocation is most correct?

a. The step-down method requires that overhead departments be ranked by the amount of services they provide to one another.

b. The step-down method does not allocate costs from each overhead department to every other overhead department.

c. The step-down method is less complex than the reciprocal method.

d. The step-down method is more complex than the direct method.

e. All of these statements are correct.

60.Which of the following statements about cost allocation is most correct?

a. The direct method is conceptually best and least expensive to implement.

b. The step-down method recognizes all intra-support department costs.

c. The reciprocal method is conceptually best but typically the most expensive to implement.

d. Statements a. and b. are both correct.

e. Statements b. and c. are both correct.

61. 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.

62.Which of the following statements about cost allocation is most correct?

a. The direct method of allocation recognizes services provided by support departments to one another.

b. A cost driver is any grouping of overhead costs that must be allocated.

c. The reciprocal method of allocation represents a compromise between the direct method and the step-down method.

d. A cost pool is the total amount of direct costs incurred by one of the patient services departments.

e. None of these statements are correct.

63.Effective cost drivers should have which of the following characteristics?

a. They should be perceived as being fair.

b. They should create an incentive for cost reduction.

c. They should create an allocation rate based on patient revenues.

d. Statements a. and b. are both correct.

e. Statements a. and c. are both correct.

53.Which of the following statements regarding the relationship between reimbursement method and risk is most correct?

a. Under capitation, risk is reduced by maximizing fixed costs.

b. Under capitation, risk is reduced by maximizing variable costs.

c. Under fee-for-service, risk is reduced by maximizing fixed costs.

d. Under fee-for-service, risk is reduced by maximizing variable costs. e. Statements a. and d. are both correct.

54. True or False: Managerial accounting data typically require assumptions about the future and are therefore more uncertain than financial accounting data.

55. True or False: Through changes to contracts or other operational decisions, it may be possible to convert fixed costs to variable costs or vice versa.

56.Smith Pharmaceuticals is trying to estimate the breakeven volume of sales on a newly developed drug.

Which of the following would be expected to reduce the number of pills Smith would need to sell to breakeven (i.e., which would result in a lower breakeven volume) assuming everything else remains the same?

a. An increase in total fixed costs

b. A decrease in the selling price per pill

c. An increase in the variable cost per pill

d. An increase in the unit (per pill) contribution margin

e. An increase in allocated overhead (indirect) costs

57.Assume the local children’s hospital implements an outpatient asthma intervention to improve the health outcomes of children with asthma. As a result, the hospital sees a dramatic reduction in the number of inpatient admissions for children with asthma, but very little change in the total cost of operating the hospital. Which of the following statements describes the most likely reason for the lack of cost savings? a. The hospital’s cost structure primarily consists of variable costs.

b. The hospital’s cost structure primarily consists of fixed costs.

c. The hospital’s cost structure consists of an equal mix of variable and fixed costs.

d. The hospital reduced its capacity (i.e., downsized) following the drop in admissions.

e. The hospital has a very high variable cost per admission.

58. True or False: An organization with high fixed costs (relative to variable costs) will suffer a greater decrease in profit as volume declines than an organization with high variable costs (relative to fixed costs).