Multiple Choice – Ch 07-09, 14, 16, 17

Ch 07 – 1
Which of the following pricing strategies is most likely to lead to long-term financial sustainability?
a. Full cost
b. Marginal cost
c. Direct cost
d. Indirect cost
e. Variable cost
A
Ch 07 – 2
Which of the following strategies is most likely to assure the profitability on a contract undertaken by a price-taker provider?
a. Full cost pricing
b. Marginal cost pricing
c. Target costing
d. Zero cost pricing
e. Direct cost pricing
C
Ch 07 – 3
True or False: When a provider has market dominance, and hence can set its own prices (within reason), it is called a price taker.
a. True
b. False
B
Ch 07 – 4
True or False: Under full cost pricing, prices are set to cover all costs, including economic costs (profits).
a. True
b. False
A
Ch 07 – 5
True or False: Under capitation, the contribution margin is negative when volume is measured by units of output (per visit, per procedure, per patient day, and so on).
a. True
b. False
A
Ch 07 – 6
True or False: Utilization management is more important for capitated patients than for fee-for-service patients.
a. True
b. False
A
Ch 07 – 7
Which of the follow statements best describes the contribution margin?
a. The contribution margin is defined as fixed costs minus variable costs.
b. The contribution margin is the dollar amount of each unit of output that is available first to cover fixed costs and then to contribute to profit.
c. The contribution margin is defined as revenues minus fixed costs.
d. The total contribution margin is defined as the contribution margin multiplied by total revenues.
e. The total contribution margin is defined as the contribution margin multiplied by total costs.
B
Ch 07 – 8
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. Both a. and d. above are correct.
E
Ch 08 – 1
Which of the following is not part of a business’s strategic plan?
a. Mission statement
b. Values statement
c. Goals
d. Capital budget
e. Objectives
D
Ch 08 – 2
Budgets are used for:
a. Planning
b. Communication
c. Control
d. Both a. and b. above
e. a., b., and c. above
E
Ch 08 – 3
True or False: The operating plan focuses on how a business plans to meet the goals and objectives contained in the strategic plan.
a. True
b. False
A
Ch 08 – 4
True or False: To be most effective, budgets must be thought of as financial staff tools.
a. True
b. False
B
Ch 08 – 5
Which of the following statements about budgeting is incorrect?
a. In the conventional approach, the prior budget is used as the starting point.
b. In zero-based budgeting, the prior budget is adopted for the coming year with no changes.
c. All organizations use annual budgets, but most also use quarterly (or more frequent) budgets.
d. Out-year budgets are used more for planning purposes than for control.
e. Bottom-up budgets begin at department level and then are approved by senior management.
B
Ch 08 – 6
True or False: Small organizations may use a single operating budget in place of multiple budgets.
a. True
b. False
A
Ch 08 – 7
In budgeting, variance is:
a. A measure of the degree of dispersion of a distribution about its mean value.
b. The difference between a realized value and a budgeted, or standard, value.
c. The percentage decrease in volume that can occur without causing the organization to lose money.
d. The difference between operating profit and total profit.
e. The difference between total revenues and total costs.
B
Ch 08 – 8
Which of the following statements about a flexible budget is most correct?
a. A flexible budget uses realized (actual) prices along with all other original (simple) budget assumptions.
b. A flexible budget uses realized (actual) labor costs along with all other original (simple) budget assumptions.
c. A flexible budget uses realized (actual) supplies costs along with all other original (simple) budget assumptions.
d. A flexible budget uses realized (actual) facilities costs along with all other original (simple) budget assumptions.
e. A flexible budget uses realized (actual) volume along with all other original (simple) budget assumptions.
E
Ch 09 – 1
Which of the following statements about project classifications is most correct?
a. Projects are classified by purpose, such as replacement projects.
b. Projects are classified by size, such as less than $1 million.
c. Projects are classified by life, such as less than 5 years.
d. Both a. and b. above are correct.
e. a., b., and c. above are correct.
D
Ch 09 – 2
Which of the following are steps in a capital investment financial analysis?
a. Estimate the project’s cash flows
b. Assess the project’s riskiness
c. Estimate the project cost of capital (discount rate)
d. Measure the financial impact
e. All of the above
E
Ch 09 – 3
True or False: For investor-owned businesses, a capital investment financial analysis identifies those projects that are expected to contribute to owner (shareholder) wealth.
a. True
b. False
A
Ch 09 – 4
Which of the following statements about payback (payback period) is most correct?
a. Payback is a measure of time breakeven.
b. Payback is a rough measure of risk.
c. Payback is a rough measure of liquidity.
d. Both a. and b. above are correct.
e. a., b., and c. above are correct.
E
Ch 09 – 8
As the discount rate applied to a single amount future value increases, the present value:
a. stays the same.
b. increases by some amount.
c. doubles.
d. decreases.
e. There is not enough information to answer this question.
D
Ch 09 – 9
True or False: Two years ago, you invested $1,000 in a healthcare stock. Your return during the first year was -50 percent, while your return in the second year was +50 percent. Your investment is now worth $1,000.
a. True
b. False
B
Ch 09 – 10
The internal rate of return (IRR) of a capital investment:
a. Changes when the cost of capital changes.
b. Must exceed the project cost of capital to make the investment financially acceptable.
c. Measures the dollar profitability of a project.
d. Must be less than the project cost of capital to make the investment financially acceptable.
e. Measures the length of time that it takes a business to recover its initial investment in the project.
B
Ch 14 – 1
Which of the following statements about capital investment project scoring is most correct?
a. Project scoring combines the payback, NPV, and IRR values to create an all-encompassing measure of financial attractiveness.
b. Project scoring is a technique that quantifies the social value of a project.
c. Project scoring is a technique that considers both financial and non-financial factors.
d. Project scoring assigns values to various diseases, and then ranks projects according to their effectiveness in treating patients with those diseases.
e. Project scoring examines the facilities of an organization to determine whether or not the organization can support the project.
C
Ch 14 – 2
Which of the following statements about the Post Audit is most correct?
a. The purpose of the post audit is to improve forecasts.
b. The purpose of the post audit is to develop historical risk data.
c. The purpose of the post audit is to improve operations.
d. The purpose of the post audit is to reduce losses.
e. All of the above
E
Ch 14 – 3
True or False: Capital budgeting is the process of analyzing potential expenditures on fixed assets and deciding whether the firm should undertake those investments.
a. True
b. False
A
Ch 14 – 4
The most critical and the most difficult step in analyzing a project is estimating the _______________________ that the project will generate.
a. incremental cash flows
b. opportunity costs
c. net present value
d. payback period
e. project scoring
A
Ch 14 – 5
The most commonly used return on investment (ROI) measures are net present value and:
a. inflation
b. opportunity cost
c. strategic value
d. payback period
e. internal rate of return
E
Ch 14 – 6
True or False: The net present social value (NPSV) formalizes the capital budgeting decision process for the for-profit firm.
a. True
b. False
B
Ch 14 – 7
True or False: The modified internal rate of return (MIRR) is a worse measure of a project’s percentage rate of return than the internal rate of return (IRR).
a. True
b. False
B
Ch 14 – 8
True or False: Firms often use project scoring to subjectively incorporate a large measure of factors, including financial and non-financial, into the capital budgeting decision process.
a. True
b. False
A
Ch 10 – 9
True or False: Projects can be categorized by purpose including: mandatory replacement, discretionary replacement, expansion of new or existing services, environmental/safety projects and other.
a. True
b. False
A
Ch 16 – 1
Which of the following statements best describes the revenue cycle?
a. It focuses on cash management.
b. It focuses on inventory management.
c. It focuses on receivables management.
d. It focuses on cash, inventory, and receivables management.
e. It focuses on all activities associated with billing and collecting for services.
E
Ch 16 – 2
The revenue cycle is composed of:
a. Before service activities
b. At-service activities
c. After-service activities
d. Monitoring and reporting activities
e. All of the above activities
E
Ch 16 – 3
Which of the following techniques are used to monitor a business’s receivables?
a. Average collection period
b. Aging schedule
c. Collections budget
d. Both a. and b. above
e. a., b., and c. above
D
Ch 16 – 4
True or False: A business’s float is maximized by accelerating disbursements and slowing receipts.
a. True
b. False
B
Ch 16 – 5
Businesses hold short-term securities for which of the following reasons?
a. As a substitute for cash
b. As a temporary repository for cash being accumulated for a specific purpose
c. As a buffer against bad debt losses.
d. Both a. and b. above
e. a., b., and c. above
D
Ch 16 – 6
True or False: The goal of inventory management is to ensure that the stock-out rate is less than 10 percent, which means that the business runs out of less than 10 percent of its inventory items in any given year.
a. True
b. False
B
Ch 16 – 7
Which of the following inventory management techniques are currently being used by healthcare providers?
a. Just-in-time systems
b. Stockless systems
c. Consigned inventory systems
d. Both a. and b. above
e. a., b., and c. above
E
Ch 16 – 8
Which of the following operating metrics is used to monitor labor productivity?
a. Profit per discharge
b. Length of stay (LOS)
c. FTEs per occupied bed
d. Medicare percentage
e. Outpatient revenue percentage
C
Ch 16 – 9
Which of the following techniques are used to help interpret operating metrics?
a. Trend analysis
b. Comparative analysis
c. Scale analysis
d. Both a. and b. above
e. a., b., and c. above
D
Ch 17 – 1
Which of the following statements about financial condition analysis is most correct?
a. Financial condition analysis focuses on whether or not an organization has the financial capacity to accomplish its mission.
b. Financial condition analysis often results in a list of financial strengths and weaknesses.
c. Financial statement analysis uses data contained in an organization’s financial statements to assess financial condition.
d. Operating analysis uses operating data to explain financial condition.
e. All of the above statements are correct.
E
Ch 17 – 2
True or False: In ratio analysis, a single value has little meaning. Therefore analysts use trend and comparative analyses to help “interpret the numbers.”
a. True
b. False
A
Ch 17 – 3
True or False: The primary difference between financial statement analysis and operating analysis is that operating analysis does not use benchmarking while financial statement analysis does.
a. True
b. False
B
Ch 17 – 4
Which of the following statements about financial statement analysis is most correct?
a. The current ratio measures liquidity.
b. Du Pont analysis is based on the fact that return on equity (ROE) can be expressed as the sum of three other ratios (Ratio 1 + Ratio 2 + Ratio 3).
c. It is relatively easy to interpret a ratio in the absence of comparative and trend data.
d. Both a. and b. above are correct.
e. a., b., and c. above are correct.
A
Ch 17 – 5
True or False: To create common size financial statements, all income statement items and balance sheet accounts are divided by total assets.
a. True
b. False
B
Ch 17 – 6
Which of the following statements about the limitations of financial condition analysis is most correct?
a. Comparison with industry averages is difficult if the organization operates in several different lines of business.
b. Seasonal factors can distort ratios.
c. Inflation effects can distort ratios.
d. Both a. and b. above are correct.
e. a., b., and c. above are correct.
E
Ch 17 – 7
KPI stands for:
a. Kerrigan patient index
b. Key patient income
c. Key performance indicator
d. Key person insurance
e. Known performance index
C
Ch 17 – 8
True or False: It is always quite easy to determine whether a given ratio value is “good” or “bad.”
a. True
b. False
B
Ch 17 – 9
Suppose that two hospitals are identical in all ways except that Hospital N is relatively new while Hospital O is relatively old. Which of the following statements about a comparative financial statement analysis is most correct? (Hint: Think about the differences in the amount of net fixed assets carried on the balance sheet and the amount of depreciation expense reported on the income statement.)
a. Hospital N will report the higher net income.
b. Hospital N will have the higher total asset turnover.
c. Hospital N will have the higher fixed asset turnover.
d. Hospital N will have the lower gross fixed assets.
e. None of the above statements are correct.
E