CVPM Inventory and Cost Control 4 — Questions and Answers
Question 1: A practice implements a formulary to standardize drug selection. What is the primary operational benefit?
- Increased product variety for clients
- Reduced inventory complexity and improved purchasing leverage (Correct answer)
- Compliance with state pharmacy law
- Faster dispensing by veterinary technicians
Correct answer: Reduced inventory complexity and improved purchasing leverage
A formulary limits product choices to preferred items, reducing stock complexity, simplifying ordering, and increasing volume discounts with fewer suppliers.
Question 2: Which practice best prevents controlled substance diversion in a veterinary clinic?
- Storing controlled substances in an unlocked cabinet for quick access
- Requiring dual sign-off on controlled substance logs and conducting regular reconciliation (Correct answer)
- Dispensing controlled substances only on weekends when traffic is lower
- Keeping a verbal log of controlled substance use
Correct answer: Requiring dual sign-off on controlled substance logs and conducting regular reconciliation
Dual sign-off and regular reconciliation of controlled substance logs are the most effective deterrents to diversion.
Question 3: A practice wants to reduce carrying costs. Which action directly achieves this goal?
- Increasing safety stock levels
- Lowering order frequency
- Reducing average inventory on hand (Correct answer)
- Switching to a periodic inventory system
Correct answer: Reducing average inventory on hand
Carrying costs (storage, insurance, obsolescence) are proportional to the amount of inventory held; reducing average stock lowers them.
Question 4: What does the term 'days inventory outstanding (DIO)' measure?
- The number of days between ordering and receiving inventory
- The average number of days inventory is held before being sold (Correct answer)
- The number of days past due on vendor invoices
- The expected shelf life remaining on perishable products
Correct answer: The average number of days inventory is held before being sold
DIO = (average inventory / COGS) × 365, indicating how many days on average inventory sits before sale.
Question 5: In a veterinary practice, which scenario represents a 'stockout cost'?
- Overpaying for a drug due to a missed volume discount
- A client leaving without treatment because a medication was unavailable (Correct answer)
- Paying storage fees for excess vaccine inventory
- Writing off expired products at year end
Correct answer: A client leaving without treatment because a medication was unavailable
A stockout cost occurs when the absence of inventory causes lost revenue and potential client defection.
Question 6: Which pricing strategy sets product prices based on what competitors charge rather than on cost-plus calculations?
- Value-based pricing
- Competitive pricing (Correct answer)
- Penetration pricing
- Cost-plus pricing
Correct answer: Competitive pricing
Competitive pricing sets prices by benchmarking against what competitors charge for similar products or services.
Question 7: A practice notices that one vaccine line consumes 60% of refrigerator space but contributes only 8% of revenue. What is the most appropriate managerial response?
- Expand refrigerator capacity to accommodate more of this vaccine
- Evaluate reducing stock depth and negotiating JIT delivery to free up space (Correct answer)
- Immediately discontinue the product line
- Move the vaccine to room-temperature storage to save space
Correct answer: Evaluate reducing stock depth and negotiating JIT delivery to free up space
High space usage with low revenue contribution warrants reducing on-hand quantity and using just-in-time ordering to optimize the return on storage resources.
CVPM Inventory and Cost Control 4
A practice implements a formulary to standardize drug selection.
What is the primary operational benefit?