Answer the 12 questions.

1. What is an example of cost information that is adequate for reporting purposes but perhaps inadequate for managers and executives? Use different examples than those provided in the chapter.

2. Why don’t health care organizations use the most accurate costing techniques available?
3. What is wrong with allocating costs such as nursing on a per diem basis?

4. What are the total financial requirements of a health care organization?

5. What are the minimum data that a nurse manager would need about a nursing unit for which he or she is responsible?

6. As the manager, you can now determine the staff mix. What data do you need to decide on the appropriate staff mix?

7. What is the Medicare step-down approach?

8. Describe the four approaches to allocating a revenue center’s costs to units of service.

9. What costs should be included in determining the costs of nursing care?

10. What is product-line costing?

11. What are the factors associated with the retention of professional nursing staff?

12. How does a nurse manager determine the cost of turnover?
Assignment#2

Chapter 09: Determining Health Care Costs and Prices
PROBLEMS:
1. Below is a cost-allocation problem. You are given the nonrevenue center bases for allocation and the direct costs for each cost center. Allocate the nonrevenue cost center costs to the revenue centers using step-down allocation. Then allocate them again. The second time, change the order of allocation. Did it change the total direct and indirect costs of each revenue center? By how much? Note that administration costs are allocated based on the direct cost of each cost center, under the good-enough assumption that cost centers with more costs require more administrative supervision. Nursing is allocated based on nursing hours, under the good-enough assumption that a cost center consuming twice as many nursing hours is consuming twice as much nursing costs.

Exhibit 9-1 Allocation Bases

COST BASE INFORMATION FOR ALLOCATION

Nonrevenue Cost Centers Revenue Cost Centers
Operating Total
AdministrationNursing Room Per Diem Cost
Direct cost $100,000 $300,000 $100,000 $0 $500,000
Allocation
Statistics
Administration
Direct costs 75% 25% 0% 100%
Nursing
Nursing hours 10% — 20% 70% 100%

2. Assume that you are the nurse manager of a primary care clinic. The total fixed costs of the clinic are $2000 per week. The variable costs of the clinic are approximately $20 per patient visit, at the typical level of patient acuity generally observed in the clinic. The clinic has 50 patient visits per day for 5 days per week. Using these data, answer the next two questions.

a. What is the average cost for each patient for each visit?
b. What will the average cost for each visit be if the clinic has only 25 visits per day?

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