CVPM Financial Management & Budgeting 3 — Questions and Answers
Question 1: Which cost is an example of a variable expense in a veterinary practice?
- Monthly rent on the facility
- Annual malpractice insurance premium
- Cost of vaccines and medications used per patient (Correct answer)
- Veterinarian base salary
Correct answer: Cost of vaccines and medications used per patient
Variable costs fluctuate directly with the volume of services provided, such as drugs and supplies consumed per patient visit.
Question 2: What is the purpose of a capital expenditure budget in a veterinary practice?
- To track daily operational expenses
- To plan for major long-term asset purchases such as equipment and facility improvements (Correct answer)
- To manage petty cash disbursements
- To forecast monthly payroll costs
Correct answer: To plan for major long-term asset purchases such as equipment and facility improvements
A capital expenditure (CapEx) budget plans for significant investments in assets that will provide value over multiple years.
Question 3: If a practice's current ratio is 0.8, what does this indicate?
- The practice has strong short-term liquidity
- The practice may have difficulty meeting short-term obligations (Correct answer)
- The practice is highly profitable
- The practice has excessive cash reserves
Correct answer: The practice may have difficulty meeting short-term obligations
A current ratio below 1.0 means current liabilities exceed current assets, signaling potential difficulty paying short-term debts.
Question 4: Which pricing strategy involves setting fees based on the total cost of providing a service plus a desired profit margin?
- Competitive pricing
- Value-based pricing
- Cost-plus pricing (Correct answer)
- Penetration pricing
Correct answer: Cost-plus pricing
Cost-plus pricing calculates the full cost of delivering a service and adds a predetermined profit markup to set the fee.
Question 5: A practice manager is reviewing a budget variance report. An unfavorable variance in the labor cost line most likely means:
- The practice spent less on labor than budgeted
- Actual labor costs exceeded the budgeted amount (Correct answer)
- Staff productivity improved beyond targets
- Payroll taxes were lower than expected
Correct answer: Actual labor costs exceeded the budgeted amount
An unfavorable (negative) variance indicates actual costs were higher than budgeted, which is a concern for expense management.
Question 6: Which financial metric best indicates how much revenue is generated per full-time equivalent (FTE) veterinarian?
- Net profit margin
- Revenue per FTE (Correct answer)
- Accounts receivable turnover
- Debt-to-equity ratio
Correct answer: Revenue per FTE
Revenue per FTE veterinarian is a productivity metric that benchmarks how much revenue each full-time equivalent doctor generates.
Question 7: In veterinary practice accounting, 'accrual basis' accounting records revenue:
- Only when cash is received from the client
- When the service is earned, regardless of when payment is received (Correct answer)
- At the end of each fiscal year
- When the invoice is sent to the client's insurance provider
Correct answer: When the service is earned, regardless of when payment is received
Accrual accounting recognizes revenue when services are performed, not when cash is collected, providing a more accurate financial picture.
CVPM Financial Management & Budgeting 3
Which cost is an example of a variable expense in a veterinary practice?