CVPM Inventory and Cost Control 5 — Questions and Answers
Question 1: A practice manager reviews a product with a 6-week lead time and sells 30 units per week. What is the lead time demand?
- 30 units
- 90 units
- 180 units (Correct answer)
- 210 units
Correct answer: 180 units
Lead time demand = 30 units/week × 6 weeks = 180 units.
Question 2: Which financial metric best indicates whether a practice's product pricing is covering direct product costs?
- Net profit margin
- Gross profit margin (Correct answer)
- Operating expense ratio
- Return on assets
Correct answer: Gross profit margin
Gross profit margin measures revenue minus COGS as a percentage of revenue, directly reflecting whether product pricing covers direct costs.
Question 3: A practice manager notices frequent back-ordering of a specific antibiotic. What is the most effective long-term solution?
- Increase the reorder point and establish a secondary supplier (Correct answer)
- Switch clients to over-the-counter alternatives
- Eliminate the product from the formulary
- Order the antibiotic only when a prescription is written
Correct answer: Increase the reorder point and establish a secondary supplier
Raising the reorder point and qualifying a backup supplier addresses both timing and supply-chain risk for a frequently back-ordered item.
Question 4: Under DEA regulations, how long must a veterinary practice retain Schedule II controlled substance records?
- 1 year
- 2 years (Correct answer)
- 5 years
- 7 years
Correct answer: 2 years
DEA regulations require that Schedule II controlled substance records be maintained for a minimum of two years.
Question 5: A practice's average payment terms with suppliers are net 45 days, but its average collection time from clients is 15 days. What does this imply for cash flow?
- The practice faces a cash flow gap because clients pay before suppliers are due
- The practice enjoys a favorable cash flow position since clients pay well before payables are due (Correct answer)
- The practice must borrow to cover the 30-day gap
- Payment terms have no impact on operating cash flow
Correct answer: The practice enjoys a favorable cash flow position since clients pay well before payables are due
Collecting from clients in 15 days while paying suppliers in 45 days means the practice holds cash for 30 days, a favorable working capital position.
Question 6: Which action is most appropriate when a physical count reveals inventory 15% lower than system records?
- Assume a system error and ignore the discrepancy
- Investigate root causes such as theft, miscounts, or posting errors before adjusting records (Correct answer)
- Immediately reorder stock to restore system quantities
- Increase prices to recover the missing margin
Correct answer: Investigate root causes such as theft, miscounts, or posting errors before adjusting records
A significant variance warrants investigation to identify the cause before making accounting adjustments or purchasing decisions.
Question 7: A practice is evaluating group purchasing organization (GPO) membership for inventory procurement. What is the primary benefit?
- Eliminating the need for a dedicated inventory manager
- Access to negotiated pricing through collective purchasing volume (Correct answer)
- Automatic compliance with controlled substance regulations
- Guaranteed next-day delivery on all orders
Correct answer: Access to negotiated pricing through collective purchasing volume
GPOs aggregate the buying power of many practices to negotiate lower prices with suppliers that individual practices could not achieve alone.
CVPM Inventory and Cost Control 5
A practice manager reviews a product with a 6-week lead time and sells 30 units per week.
What is the lead time demand?