ALF Financial Management & Budgeting 2 — Questions and Answers
Question 1: An ALF administrator notices that actual food service costs exceeded the budgeted amount by 12% this quarter. What is the most appropriate first step?
- Perform a variance analysis to identify the cause (Correct answer)
- Immediately reduce meal portions for residents
- Terminate the dietary manager
- Raise resident fees the following month
Correct answer: Perform a variance analysis to identify the cause
Variance analysis identifies whether the overage stems from price increases, census changes, waste, or other causes before corrective action is taken.
Question 2: Which budgeting method requires every expense line to be justified from a zero base each budget cycle, rather than adjusting prior-year figures?
- Zero-based budgeting (Correct answer)
- Incremental budgeting
- Flexible budgeting
- Capital budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts each line at zero and requires justification for all expenditures, unlike incremental budgeting which adjusts prior-year amounts.
Question 3: In an assisted living facility, the purchase of a new commercial washer expected to last 10 years should appear in which budget?
- Capital budget (Correct answer)
- Operating budget
- Cash budget
- Payroll budget
Correct answer: Capital budget
Long-lived, high-cost assets like commercial equipment are planned through the capital budget, not the operating budget.
Question 4: A facility's occupancy drops from 92% to 80%. Which financial effect is most immediate?
- Reduced revenue while fixed costs remain largely unchanged (Correct answer)
- Lower fixed costs such as mortgage payments
- Higher per-resident food costs due to bulk discounts
- An automatic increase in Medicaid reimbursement
Correct answer: Reduced revenue while fixed costs remain largely unchanged
Occupancy declines cut revenue immediately, but fixed costs like debt service and insurance do not fall with census.
Question 5: Which financial statement shows an assisted living facility's revenues and expenses over a specific period, resulting in net income or loss?
- Income statement (Correct answer)
- Balance sheet
- Statement of cash flows
- Trial balance
Correct answer: Income statement
The income statement (profit and loss statement) reports revenues minus expenses over a period to show net income or loss.
Question 6: Accounts receivable aging reports are primarily used by an ALF administrator to:
- Track how long resident balances have gone unpaid (Correct answer)
- Schedule depreciation of facility assets
- Calculate staff overtime liability
- Forecast utility rate increases
Correct answer: Track how long resident balances have gone unpaid
An aging report categorizes unpaid receivables by time outstanding, helping administrators prioritize collections and spot payment problems early.
Question 7: Under accrual accounting, when should an ALF record revenue for services provided to a resident in June but paid in August?
- In June, when the service was provided (Correct answer)
- In August, when cash is received
- In July, split between the two months
- At fiscal year-end only
Correct answer: In June, when the service was provided
Accrual accounting recognizes revenue when it is earned, not when cash is received.
ALF Financial Management & Budgeting 2
An ALF administrator notices that actual food service costs exceeded the budgeted amount by 12% this quarter.
What is the most appropriate first step?