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55) Ideally, inventory purchases occur in response to ________ in a JIT inventory system.
A) customer demand
B) optimal demand
C) forecast demand
D) supplier demand
56) A JIT inventory system would be especially useful for a company that manufactures
A) toys associated with new movie releases.
B) toothpaste.
C) alarm clocks.
D) motor oil.
57) Which of the following factors is not of key importance when selecting inventory suppliers?
A) product price
B) vendor corporate structure
C) product quality
D) vendor delivery dependability
58) MacDougalKids is a mid-sized manufacturer of organic baby food. MacDougalKids uses the
EOQ inventory management approach. Which of the following factors would likely be least
important when selecting inventory suppliers?
A) product price
B) product quality
C) vendor delivery dependability
D) All would be equally important.
59) MacDougalKids is a mid-sized manufacturer of organic baby food. MacDougalKids uses a
JIT inventory management approach. Which of the following factors would likely be least
important when selecting inventory suppliers?
A) product price
B) product quality
C) vendor delivery dependability
D) All would be equally important
13.2 Discuss the key decisions to be made in the expenditure cycle, and identify the information
needed to make those decisions.
1) To accomplish the objectives set forth in the expenditure cycle, a number of key management
decisions must be addressed. Which of the decisions below is not ordinarily found as part of the
expenditure cycle?
A) How can cash payments to vendors be managed to maximize cash flow?
B) What is the optimal level of inventory and supplies to carry on hand?
C) Where should inventories and supplies be held?
D) What are the optimal prices for each product or service?
2) What types of decision-making and strategic information should the AIS provide in the
expenditure cycle?
13.3 Identify major threats in the expenditure cycle, and evaluate the adequacy of various
control procedures for dealing with those threats.
1) Requiring all packing slips be reconciled to purchase orders before accepting a delivery of
inventory would be most likely to prevent which of the following situations?
A) A supplier delivers more inventory than ordered at the end of the year and sends an invoice
for the total quantity delivered.
B) An employee mails a fake invoice to the company, which is then paid.
C) The inventory records are incorrectly updated when a receiving department employee enters
the wrong product number on the receiving report.
D) Receiving department employees steal inventory and then claim the inventory was received
and delivered to the warehouse.
2) Comparing quantities on a vendor invoice to quantities on the receiving report would not
prevent or detect which of the following situations?
A) receiving and accepting inventory not ordered
B) theft of inventory by receiving department employees
C) update of wrong inventory items due to data entry error
D) order for an excessive quantity of inventory
3) Which of the following would probably be the least effective control to mitigate the risk of
paying a phony invoice payable for inventory purchases that were never made?
A) Only pay from original invoices.
B) Require three-way match for all inventory purchase invoices.
C) Cancel all invoices and supporting documentation when paid.
D) Establish strict access and authorization controls for the approved vendor master file.
4) Which of the following controls would be the least effective in preventing paying the same
invoice twice?
A) Only pay from original invoices.
B) Cancel each document in the voucher package once the check is prepared and mailed.
C) Only pay vendor invoices that have been matched and reconciled to a purchase order and a
receiving report.
D) Allow only the accounts payable department to authorize payment for vendor invoices and
allow only the cash disbursements department to cut and mail checks to vendors.
5) If duties are properly segregated, the authorization function is performed by ________, the
recording function is performed by ________, and cash handling is performed by the ________.
A) accounts payable; purchasing; cashier
B) purchasing; accounts payable; cashier
C) purchasing; cashier; accounts payable
D) purchasing; accounts payable; treasurer
6) Evaluated receipt settlement approves payment of vendor invoices after reconciling the
purchase order and the
A) receiving report.
B) vendor invoice.
C) sales invoice.
D) disbursement voucher.
7) What is the best control to mitigate the threat of paying prices that are too high for goods
ordered?
A) Require the receiving department to verify the existence of a valid purchase order.
B) Use only approved suppliers and solicit competitive bids.
C) Only pay invoices that are supported by the original voucher package.
D) Use bar-code technology to eliminate data entry errors.
8) What is the best way to prevent the acceptance of goods that were never ordered?
A) Order only from approved vendors.
B) Enforce an appropriate conflict of interest policy in place.
C) Match the packing slip to a purchase order before accepting delivery.
D) Require specific authorization from the purchasing manager before accepting any goods.
9) Which of the following is not a common control for ensuring inventory is secure and
inventory counts are accurate?
A) control of physical access to the inventory storage areas
B) transfers of inventory with proper documentation
C) sending "blind" copies of purchase orders to inventory control for data entry
D) making physical counts of inventory at least once per year
10) What control would best mitigate the threat of paying an invoice twice?
A) never authorizing payment of a photocopy of an invoice
B) double-checking mathematical accuracy of invoices
C) approval of purchase orders
D) maintaining adequate perpetual inventory records
11) Which control would best prevent payments made to fictitious vendors?
A) Allow payments only to approved vendors.
B) Restrict access to any payment or approval documents.
C) Have an independent bank reconciliation.
D) Make sure all documents are in order before approving payments.
12) In the expenditure cycle, good control dictates that expenditures should be paid by check.
This may not be feasible when minor purchases are made. To facilitate quick payment for minor
purchases, a(n) ________ should be set up and maintained using ________.
A) special bank account; disbursement vouchers
B) imprest fund; vouchers
C) cash box; small denomination bills
D) petty cash fund; procurement cards
13) A surprise count of an imprest petty cash fund should find the total of ________ equal to the
amount authorized for the fund.
A) cash and credit memos
B) cash and vouchers
C) cash
D) cash and checks
14) What control should be put in place that assigns responsibility for EFT payments made to
vendors?
A) Encrypt all EFT transmissions.
B) Time stamp all EFT transactions.
C) Establish a control group to monitor EFT transactions for validity and accuracy.
D) Number all EFT transactions.
15) Which of the following threats is not specific to the purchase requisition process of the
expenditure cycle?
A) stockouts
B) purchasing from unauthorized vendors
C) requisitioning goods not needed
D) All of the above are threats in the purchase requisition process.
16) The management at Barks-a-Million is considering a new inventory control system. The
current system is inadequate because it frequently causes stockouts that interrupt production and
lead to excess stock of other materials — resulting in markdowns and high carrying costs. The
new system will focus on ensuring that these costs are minimized. The new inventory control
system will likely employ
A) a reorder point.
B) a just-in-time inventory system.
C) the economic order quantity.
D) materials requirements planning.
17) The management at Barks-a-Million is considering a new inventory control system. The
current system is inadequate because it frequently causes stockouts that interrupt production and
lead to excess stock of other materials — resulting in markdowns and high carrying costs. The
new system will focus on ensuring that orders are placed with sufficient lead time to prevent
stockouts by using
A) a just-in-time inventory system.
B) the economic order quantity.
C) materials requirements planning.
D) a reorder point.
18) The management at Barks-a-Million is considering a new inventory control system. The
current system is inadequate because it frequently causes stockouts that interrupt production and
lead to excess stock of other materials — resulting in markdowns and high carrying costs. The
new system, which will focus on forecasting demand for Sad Clown's products, will likely
employ
A) a just-in-time inventory system.
B) the economic order quantity.
C) materials requirements planning.
D) a reorder point.
19) The management at Barks-a-Million is considering a new inventory control system. The
current system is inadequate because it frequently causes stockouts that interrupt production and
lead to excess stock of other materials — resulting in markdowns and high carrying costs. The
new system will focus on reducing or completely eliminating carrying costs, most likely
employing
A) a just-in-time inventory system.
B) a reorder point.
C) materials requirements planning.
D) the economic order quantity.
20) Anong Mali is the purchasing manager at Wattana Technologies. She has responsibility for
reviewing and authorizing purchase orders. She also reviews receiving reports, approves or
corrects them, and authorizes the cashier to pay vendor invoices. Which of the following would
correct control weaknesses related to these activities?
A) Controls are adequate under the current system.
B) Vendor invoices should be reviewed by accounts receivable and then cancelled when paid.
C) Vendor invoices should be reviewed by the purchasing manager to ensure that they are
correct.
D) Accounts payable should reconcile purchase orders, receiving reports, and invoices.
21) Anong Mali is the purchasing manager at Wattana Technologies. She has responsibility for
reviewing and authorizing purchase orders. Receiving reports are prepared by shipping and
receiving based on the relevant purchase order(s). Purchase orders, receiving reports, and vendor
invoices are reconciled by accounts payable, which authorizes payment. Which of the following
would correct control weaknesses related to these activities?
A) Controls are adequate under the current system.
B) Accounts payable should authorize purchase orders.
C) Receiving reports should be reviewed and corrected by the purchasing manager.
D) Vendor invoices should be reviewed by the purchasing manager to ensure that they are
correct.
22) The receiving clerk at Wattana Technologies examines incoming shipments and reconciles
their contents with the relevant purchase orders. A receiving report is then sent to accounts
receivable and the vendor's invoice is approved for payment. Which of the following would
correct control weaknesses related to these activities?
A) Accounts payable should reconcile the purchase order and the receiving report.
B) The invoice should be approved for payment by the shipping clerk after the purchase order
and receiving report are reconciled.
C) Invoices, purchase orders, and receiving reports should be reconciled by the receiving clerk.
D) Controls are adequate under the current system.
23) The receiving clerk at Wattana Technologies examines incoming shipments and checks their
purchase order numbers. A receiving report is then sent to accounts payable, where it is
reconciled with the relevant purchase orders and invoices and payment is authorized. Which of
the following would correct control weaknesses related to the clerk's activities?
A) Controls are adequate under the current system.
B) Vendor invoices should be approved for payment by the purchasing manager.
C) Purchase orders and receiving reports should be reconciled by the purchasing manager.
D) Vendor invoices should be approved for payment by the shipping clerk after the purchase
order and receiving report are reconciled.
24) Which of the controls below would be least effective at preventing a company from ordering
goods at a price higher than market?
A) Only place orders with vendors on an approved vendor list.
B) Variance analysis of actual expenses to budgeted expenses
C) For high-dollar goods, solicit competitive bids from possible vendors.
D) Frequent review of, and update to, vendor price lists stored in the AIS
25) Which of the following would be the best control to prevent receiving department employees
from stealing inventory and claiming the ordered quantity wasn't received from the vendor?
A) Reconcile quantity on packing slip to physical count when accepting delivery.
B) Restrict physical access to the receiving area.
C) Require all deliveries be made at the receiving area.
D) Require dual signatures on the move ticket when receiving delivers the inventory to the
warehouse.
26) Identify possible problems associated with receiving goods and appropriate actions in
response to the problems.
27) In the expenditure cycle, the majority of payments made are by check. What are some
control issues related to payment of vendors by check?
28) Identify ten threats and applicable control procedures in the expenditure cycle.
29) How can using RFID tags or bar codes on goods or products provide significant benefit in
the expenditure cycle?
30) Identify one way to improve the accuracy of inventory records that use a perpetual inventory
approach
A) use of an ERP system
B) require the accounting department to calculate cost of goods sold periodically
C) use IT to eliminate the need for manual data entry
D) use of an MRP inventory system
31) Why would a firm perform ABC cost analysis?
A) to identify the best inventory supplier
B) to reconcile accounts payable
C) to prioritize physical inventory counts
D) to verify production quality
32) True or False: It is important to physically count inventory, at least periodically, even in a
perpetual inventory system.
33) What is the main reason a list of potential alternative suppliers be maintained?
A) in case the primary supplier is out of stock
B) so the firm can sample different suppliers
C) in case the primary supplier is more expensive
D) to segregate purchasing suppliers
34) Identify the most accurate statement below.
A) Several purchase requisitions are often created to fill one purchase order.
B) Several purchase orders are often created to fill one purchase requisition.
C) Every purchase requisition should lead to the creation of one purchase order.
D) Every purchase order should lead to the creation of one purchase requisition.
35) Identify item below that is the biggest purchasing function cost driver.
A) the number of purchase requisitions processed
B) the number of suppliers used
C) the number of purchase orders processed
D) the quantity of items ordered
36) A reverse auction would likely be best suited to the purchase of
A) central processing units (CPUs).
B) soybeans.
C) designer clothing.
D) automobiles.
37) One way a firm could reduce the risk of problems with supplier dependability is to
A) purchase inventory from only U.S.-based suppliers.
B) use an ERP system for purchases.
C) require suppliers to be ISO 9000 certified.
D) automate the purchasing function.
38) An important control that can be used to reduce the risk of employee kickbacks is
A) surveillance cameras.
B) job rotation.
C) off-site restrooms.
D) use of ID badges.
39) Restricting access to the approved supplier list can
A) help reduce the risk of fraudulent disbursements.
B) cause purchase order approval delays.
C) eliminate the risk of duplicate payment.
D) improve the efficiency of the expenditure cycle.
