Watauga Lake Ortho Clinic

You are a new management trainee at Watauga Lake Ortho Clinic. To learn the business, you are performing rotations in a number of departments. This month, you are working in materials management.

Watauga Lake Ortho serves patients with a wide variety of orthopedic conditions, and these patients frequently purchase certain supplies to aid in their recovery. Watauga Lake sells these supplies to their patients at a price that is 2.5 times the cost Watauga paid their supplier for them. These sales are recorded in the computer inventory logs on the computer, which triggers a bill to be generated for the patient.

Supplies are physically inventoried at the end of each month and adjustments are made to the computer inventory logs to reconcile the amount of materials on hand. Supplies are reordered based on the supplies on hand from the physical count.

The Director of Materials Management has asked you to assess the financial impact of the differences between the inventory values based on computer tracking and physical count.

Below is the list of key inventory items comparing the computer account and the physical count.

Description	Avg Unit Cost	Computer Qunatity	Physical Quantity
Wrist	12	10	7
Arm	13.50	12	10
Carpal Tunnel	15	5	4
Thumb	18	7	6
Clavicle	21	11	10

1. What is the value of the inventory on hand using the computer quantity based on average unit cost.
2. What is the value of the inventory on hand using the physical count quantity based on average unit cost.
3. What is the likely effect on revenues and profits?
4. What might be reasons why the computer inventory and physical inventory differ?
5. Are additional controls over the supplies inventory needed? Why or why not?
6. Suggest one supply inventory control intervention that should be considered.