CVPM Financial Management & Budgeting 2 — Questions and Answers
Question 1: A veterinary practice has total revenue of $1,200,000 and cost of goods sold (COGS) of $360,000. What is the gross profit margin?
- 30%
- 70% (Correct answer)
- 40%
- 60%
Correct answer: 70%
Gross profit margin = (Revenue - COGS) / Revenue = ($1,200,000 - $360,000) / $1,200,000 = 70%.
Question 2: Which budgeting method starts from zero each period and requires managers to justify every expense?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Rolling budget
- Static budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires all expenses to be justified from scratch each budget cycle rather than using the prior year as a baseline.
Question 3: What does accounts receivable turnover ratio measure in a veterinary practice?
- How quickly the practice pays its suppliers
- How efficiently the practice collects payments from clients (Correct answer)
- The ratio of inventory to sales
- The frequency of staff payroll cycles
Correct answer: How efficiently the practice collects payments from clients
Accounts receivable turnover measures how many times per year the practice collects its average accounts receivable balance.
Question 4: A practice manager notices that drug and supply costs consistently exceed budget by 15%. Which action is MOST appropriate?
- Reduce the budget line to match actual spending
- Investigate purchasing patterns and supplier pricing before adjusting the budget (Correct answer)
- Immediately switch all suppliers
- Increase service fees to offset the overage
Correct answer: Investigate purchasing patterns and supplier pricing before adjusting the budget
Before making budget adjustments, the manager should analyze root causes such as waste, theft, or pricing discrepancies.
Question 5: Which financial statement shows the practice's assets, liabilities, and owner's equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Budget variance report
Correct answer: Balance sheet
The balance sheet (statement of financial position) provides a snapshot of what the practice owns, owes, and the owner's equity at a given date.
Question 6: In veterinary practice financial analysis, what does the term 'days sales outstanding' (DSO) indicate?
- The number of days inventory sits before being used
- The average number of days it takes to collect payment after a sale (Correct answer)
- How many days the practice operates at a profit
- The number of outstanding invoices from suppliers
Correct answer: The average number of days it takes to collect payment after a sale
DSO measures the average collection period, reflecting how quickly clients pay their outstanding balances.
Question 7: A veterinary practice with annual revenue of $900,000 wants to maintain a net profit margin of 12%. What is the target net profit?
- $54,000
- $108,000 (Correct answer)
- $90,000
- $72,000
Correct answer: $108,000
Target net profit = $900,000 × 12% = $108,000.
CVPM Financial Management & Budgeting 2
A veterinary practice has total revenue of $1,200,000 and cost of goods sold (COGS) of $360,000.
What is the gross profit margin?