CVPM Inventory and Cost Control 2 — Questions and Answers
Question 1: A veterinary practice's cost of goods sold (COGS) is $180,000 and net revenue is $450,000. What is the COGS percentage?
- 35%
- 40% (Correct answer)
- 45%
- 50%
Correct answer: 40%
COGS percentage = ($180,000 / $450,000) × 100 = 40%.
Question 2: Which inventory valuation method assumes that the most recently purchased items are sold first?
- FIFO
- LIFO (Correct answer)
- Weighted average
- Specific identification
Correct answer: LIFO
LIFO (Last In, First Out) assumes the most recently purchased items are the first to be sold.
Question 3: What is the primary purpose of an ABC inventory analysis in a veterinary practice?
- Alphabetize products for easy retrieval
- Categorize inventory by value to prioritize management effort (Correct answer)
- Track expiration dates by product category
- Assign reorder points based on supplier lead time
Correct answer: Categorize inventory by value to prioritize management effort
ABC analysis categorizes inventory into A (high-value), B (moderate), and C (low-value) items to focus management effort where it matters most.
Question 4: A drug has a unit cost of $12 and the practice applies a standard markup of 100%. What is the dispensing fee if the final client charge is $30?
- $4
- $6 (Correct answer)
- $8
- $10
Correct answer: $6
100% markup on $12 gives a selling price of $24; a $30 charge means the dispensing fee is $30 − $24 = $6.
Question 5: Which term describes the minimum quantity of an item that should be on hand before a reorder is triggered?
- Economic order quantity
- Safety stock
- Reorder point (Correct answer)
- Lead time demand
Correct answer: Reorder point
The reorder point is the inventory level at which a new purchase order should be placed to avoid stockouts.
Question 6: Shrinkage in a veterinary pharmacy inventory most commonly results from which of the following?
- High client demand for refills
- Theft, breakage, expiration, and dispensing errors (Correct answer)
- Frequent supplier price increases
- Excessive safety stock levels
Correct answer: Theft, breakage, expiration, and dispensing errors
Shrinkage refers to inventory losses from theft, breakage, product expiration, and dispensing discrepancies.
Question 7: When a vendor offers a 2/10 net 30 payment term, what does '2/10' mean?
- A 2% penalty if paid after 10 days
- A 2% discount if paid within 10 days (Correct answer)
- A $2 rebate on orders over $10
- Payment is due in 2 installments over 10 weeks
Correct answer: A 2% discount if paid within 10 days
2/10 net 30 means the buyer receives a 2% discount if the invoice is paid within 10 days; otherwise the full amount is due in 30 days.
CVPM Inventory and Cost Control 2
A veterinary practice's cost of goods sold (COGS) is $180,000 and net revenue is $450,000.
What is the COGS percentage?