HAC HAC Healthcare Supply Chain & Inventory Accounting 1 — Questions and Answers
Question 1: Under GAAP, which inventory valuation method is prohibited for US publicly reported healthcare entities that also report under IFRS?
- FIFO (First-In, First-Out)
- Weighted average cost
- LIFO (Last-In, First-Out) (Correct answer)
- Specific identification
Correct answer: LIFO (Last-In, First-Out)
IFRS prohibits the LIFO method for inventory valuation, so entities that must comply with both US GAAP and IFRS cannot use LIFO.
Question 2: A hospital's supply charge master lists an item at $45, but the vendor invoice shows $42. Under the lower-of-cost-or-net-realizable-value rule, what is the correct balance sheet value?
- $45.00
- $43.50
- $42.00 (Correct answer)
- $0 (write off immediately)
Correct answer: $42.00
ASC 330 requires inventory to be recorded at the lower of cost or net realizable value; since actual cost ($42) is lower than the list price, $42 is used.
Question 3: Which type of supply cost in a hospital is BEST classified as a direct supply cost rather than overhead?
- Central sterile processing labor
- Surgical implants used in a specific patient procedure (Correct answer)
- General housekeeping cleaning chemicals
- IT department printer paper
Correct answer: Surgical implants used in a specific patient procedure
Surgical implants traceable to a specific patient procedure are direct supply costs because they are directly attributable to patient care delivery.
Question 4: A healthcare supply chain manager uses an economic order quantity (EOQ) model. Which two costs does EOQ balance to minimize total inventory cost?
- Shrinkage cost and obsolescence cost
- Ordering cost and carrying (holding) cost (Correct answer)
- Purchase price and freight cost
- Stockout cost and spoilage cost
Correct answer: Ordering cost and carrying (holding) cost
EOQ minimizes total inventory cost by finding the order quantity where the sum of ordering costs (per order placed) and carrying costs (cost to hold inventory) is lowest.
Question 5: When a hospital writes down expired pharmaceutical inventory to zero, which financial statement is directly impacted?
- Statement of cash flows (operating section)
- Income statement (supply/inventory expense increases) and balance sheet (inventory decreases) (Correct answer)
- Statement of changes in equity only
- Balance sheet only, with no income statement effect
Correct answer: Income statement (supply/inventory expense increases) and balance sheet (inventory decreases)
A write-down of inventory increases expense on the income statement and reduces the carrying value of inventory on the balance sheet simultaneously.
Question 6: A hospital uses a perpetual inventory system. Which is an advantage over a periodic system for high-value medical supplies?
- Lower administrative cost per transaction
- Real-time tracking of inventory balances after each transaction (Correct answer)
- Simplified year-end physical count procedures
- No need for a chart of accounts for supply items
Correct answer: Real-time tracking of inventory balances after each transaction
A perpetual system updates inventory records with every receipt and issuance, providing continuous visibility into stock levels critical for high-value medical supplies.
HAC HAC Healthcare Supply Chain & Inventory Accounting 1
Under GAAP, which inventory valuation method is prohibited for US publicly reported healthcare entities that also report under IFRS?