Refer to Megatropolis Hospital’s financial statements below for calculating the ratios requested in
Megatropolis Hospital Megatropolis Hospital
Statement of Operations Balance Sheet
For the Year Ended December 31, 2009 As of December 31, 2009 (2008 omitted)
Revenues, Gains, Other Support Assets
Net patient service revenue $ 1,500,000 Current Assets
Other revenue 200,000 Cash and cash equivalents $ 50,000
Net patient receivables 350,000
Total Revenue 1,700,000
Total Current Assets 400,000
Nursing Services 1,200,000 Properties and Equipment
Gross properties and equipment $ 900,000
Administrative Services 200,000 Less accumulated depreciation 475,000
Net Properties and Equipment 425,000
Other Expenses 50,000 Total Assets $ 825,000
Total Expenses 1,550,000 Liabilities and Net Assets
Accounts Payable 200,000
Operating Income 150,000
Salaries Payable 50,000
Investment Income 50,000 Total Current Liabilities 250,000
Excess of revenues over expenses 200,000 Notes Payable 200,000
Increase in Unrestricted Net Assets$ 200,000
Unrestricted Net Assets 375,000
Total Liabilities and Net Assets$ 825,000
1. What is Megatropolis Hospital’s operating margin?
2. What is Megatropolis Hospital’s days in accounts receivable?
3. What is Megatropolis Hospital’s long-term debt to net assets ratio?
4. What is Megatropolis Hospital’s age of plant?
5. What is Megatropolis Hospital’s days of cash on hand?
6. The following information summarizes charge and cost data for Dr. Jones during the last
Number of Cases 100
Nursing Charges $350,000
Lab Charges $200,000
Pharmacy Charges $50,000
Radiology Charges $100,000
Assume that Dr. Jones’ patients pay an average 80 percent of charges. Also assume cost to
charge ratios of 0.90 in Nursing, 0.80 in Lab, 0.50 in Pharmacy, and 0.70 in Radiology. What
is the total profit earned on Dr. Jones’ patients?
7. A dermatology clinic expects to contract with an HMO for an estimated 80,000 enrollees.
The HMO expects 1 in 4 of its enrolled members to use the dermatology services per
At the end of the year, the dermatology clinic’s business manager looked at her monthly figures
and saw that the number of enrolled members had increased by 5% over the budgeted amount,
and that 1 in 3 of the total HMO members had used the dermatology services per month.
Net monthly revenues of the dermatology clinic were budgeted at $260,000 but were actually
$450,000. Monthly expenses for the clinic were budgeted at $200,000 but were actually
Prepare a monthly revenue, expense and net income variance budget for the clinic.
8. One use of financial information is to assess the efficiency of operations. In that context,
efficiency refers to:
A. the degree of financial viability achieved by the organization
B. the degree to which the organization is in compliance with directives
C. the extent to which malfeasance is minimized in the organization
D. the ratio of the organization’s outputs to its inputs
9. If the total book value of the assets of the accounting entity is $4,350,000, and the total
liabilities of the accounting entity are $1,235,000, the stockholder's equity in the
accounting entity is:
D. none of the above
10. Which of the following reflects the fundamental accounting equation (or balance sheet
equation) in a not-for-profit, business-oriented healthcare organization?
A. Equity = Liabilities + Assets
B. Assets = Long-term Debt + Equity
C. Assets = Liabilities + Net Assets
D. Net Assets = Liabilities + Assets
11. What is/(are) the primary determinant(s) of firm value?
C. Cost of capital
D. All of above
12. You increased rates by 10 percent across all services and profits decreased by 5 percent.
Cost per unit remained constant. What could account for this change?
A. Positive price elasticity
B. Negative price elasticity
C. High proportion of fixed price payers
D. High proportion of cost payers
13. Budgets normally cover a period of:
A. 5 years
B. 2 years
C. 3 years
D. 1 year
14. Which of the following is part of a statistics budget?
A. Output expectations
B. Responsibility for estimation
C. Estimation methodology
D. All of the above
15. The following is an example of a _____________ budget:
“The budget for the radiology department is different at 90 percent occupancy than at 80
16. Using the information in the table below, calculate the amount of the unfavorable rate
Volume 200,000 190,000
Revenue per unit $40 $37
Revenue $8,000,000 $7,030,000
17. Using the information in the table below, determine how much of the supplies variance is
due to a change in volume.
Budgeted Actual Variance
Volume 1,000 1,100 100
Supplies $10,000 $12,750 $2,750
Fixed labor $20,000 $22,250 $2,250
A. $ 900
18. Which of the following is an element of budgeted financial requirements that is not included
in budgeted expenses?
A. Interest expense
B. Increases in working capital
C. Labor expense
D. A and B
E. None of the above
19. Which of the following tends to insulate management somewhat from the financial results of
poor financial planning? (Pick the best answer.)
A. Capitated rates
B. Cost reimbursement
C. Bundled services
D. Charge payment
20. Which of the following is a health care provider permitted to vary across its payer mix?
A. charges (prices)
C. quality of care
D. access to emergency services
21. It is often difficult to compare treatment costs in managed care and fee-for-service settings
A. selection bias means that one group may get a disproportionately healthy or unhealthy
group of patients.
B. fee-for-service does not charge competitive prices.
C. managed care may price monopolistically.
D. answers B and C are correct.
22. Even though managed care _______ hospital utilization, its growth rate in spending is
_______ than/to most FFS plans.
A. increases; lower.
B. increases; higher.
C. reduces; higher.
D. reduces; similar.
23. Why should providers seek whenever possible to minimize health plan rate differentials?
(Choose the best answer, not simply a plausible one.)
A. So that health plans perceive fairness in negotiations
B. To encourage consolidation in the health plan market
C. So that plans with smaller discounts are not forced out of the market/business
D. To punish the larger health plans
24. Member disenrollment may cause HMOs to:
A. reduce the quality of care, by not offering the latest high-tech treatments.
B. increase the quality of care, due to the positive externalities.
C. increase price discrimination.
D. decrease price discrimination.