(Consider This) Which of the Following Best Explains Why Hospital

question 79

Multiple Choice

(Consider This) Which of the following best explains why hospital charges of $25 per aspirin are not unusual?

• A) Government payments for Medicare and Medicaid patients do not cover hospitals' fixed costs, so these costs must be distributed to other patients and their private insurance providers.
• B) Government exercises no cost control for Medicare and Medicaid, so hospitals get away with charging those patients $25 for an aspirin.
• C) Pharmaceutical companies have monopoly power over hospitals, allowing them to charge high prices for medications.
• D) Hospitals distribute a medically advanced form of aspirin that costs more to produce.

---

Definitions:

Batch-level Activity

Activities and costs that are incurred whenever a batch of goods is produced, regardless of the size of the batch.

Activity Cost Pool

A grouping of all the costs related to a particular activity in the activity-based costing method.

Activity Rate

An overhead rate in activity-based costing. Each activity cost pool has its own activity rate which is used to assign overhead to products and services.

Purchasing Department

A division within an organization responsible for acquiring goods, services, and materials necessary for its operations.