Deck 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Question 1

How can using RFID tags or bar codes on goods or products provide significant benefit in the expenditure cycle?

Answer 1

RFID tags and bar codes can significantly improve the process of receiving goods from suppliers for several reasons.First,they can easily be scanned electronically.Electronically capturing the unique number of a product not only provides identification and quantity data about the product;it can also provide specific production information such as date and time of manufacture,production run information,etc.Electronically encoding such information into an integrated AIS provides up-to-the-minute inventory counts,as well as counts of units sold,and returns for use in a perpetual inventory system.Also,both vendor and customers can read tags and bar codes,and certain formats are universal in nature.This allows goods to be sold virtually anywhere in the world,allowing for easier global marketing efforts to be made by businesses.It also eliminates the need for human data entry and reduces the risk of stockouts.

Question 2

The traditional approach to inventory management to ensure sufficient quantity on hand to maintain production is known as

A)safety stock.
B)just-in-time production.
C)economic order quantity.
D)optimal inventory quantity.

Answer 2

C

Question 3

One of the basic activities in the expenditure cycle is the receiving and storage of goods,supplies,and services.What is the counterpart of this activity in the revenue cycle?

A)sales order entry process
B)shipping function
C)cash collection activity
D)cash payments activity

Answer 3

B

Question 4

There is a symmetrical interdependence between a firm's expenditure cycle and its suppliers'

A)production cycle.
B)revenue cycle.
C)expenditure cycle.
D)general ledger and reporting system.

Question 5

The Gwallter Reece Chihuahua Sweater Co.(GRCCo)was established in 2013.It recently signed a large contract with PetCo pet stores.GRCCo will be required to track and forecast sweater sales by linking in to PetCo's sales database.GRCCo will then be responsible for shipping products to PetCo as needed.The relationship between GRCCo and PetCo is an example of

A)sales force automation.
B)electronic data interchange.
C)optical character recognition.
D)vendor-managed inventory.

Question 6

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.

Question 7

Which of the following controls can minimize the threat of mistakes in counting incoming inventory?

A)The use of positive pay.
B)Do not inform receiving employees about quantity ordered.
C)The use of ERS.
D)Perpetual inventory system.

Question 8

The first major business activity in the expenditure cycle is

A)ordering inventory,supplies,or services.
B)a customer sale.
C)shipping goods to customers.
D)receiving goods from vendors.

Question 9

The Gwallter Reece Chihuahua Sweater Co.(GRCCo)was established in 2013.It recently signed a large contract with PetCo pet stores.GRCCo will be required to track and forecast sweater sales.The technology that is used for communication between GRCCo and PetCo is

A)electronic data interchange.
B)vendor-managed inventory.
C)sales force automation.
D)optical character recognition.

Question 10

Explain what is meant by the expenditure cycle as a "mirror image" of the revenue cycle.

Question 11

What types of decision-making and strategic information should the AIS provide in the expenditure cycle?

Question 12

The ________ specifies the point at which inventory is needed.

A)company inventory policies
B)reorder point
C)economic order quantity
D)stockout point

Question 13

Economic Order Quantity (EOQ)includes several variables that must be taken into consideration when calculating the optimal order size.One variable,the costs associated with holding inventory,is referred to as

A)ordering costs.
B)carrying costs.
C)the reorder point.
D)stockout costs.

Question 14

Which of the following controls can minimize the threat of check alteration?

A)The use of positive pay.
B)Do not inform receiving employees about quantity ordered.
C)The use of ERS.
D)Perpetual inventory system.

Question 15

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.

Question 16

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?

Question 17

Which of the following controls can minimize the threat of errors in supplier invoices?

A)The use of positive pay.
B)Do not inform receiving employees about quantity ordered.
C)The use of ERS.
D)Perpetual inventory system.

Question 18

Which of the following controls can minimize the threat of stockouts and excess inventory?

A)The use of positive pay.
B)Do not inform receiving employees about quantity ordered.
C)The use of ERS.
D)Perpetual inventory system.

Question 19

Which of the following is not an activity performed in the expenditure cycle?

A)ordering
B)receiving
C)cash disbursement
D)shipping

Question 20

Identify ten threats and applicable control procedures in the expenditure cycle.

Question 21

What is the key difference between the MRP and JIT inventory management approaches?

A)Only JIT reduces costs and improves efficiency.
B)MRP is especially useful for products such as fashion apparel.
C)JIT is more effectively used with products that have predictable patterns of demand.
D)MRP schedules production to meet estimated sales needs;JIT schedules production to meet customer demands.

Question 22

Once a vendor is selected for a product,the vendor's identity is recorded in the

A)purchase requisition transaction file.
B)purchase requisition master file.
C)inventory transaction file.
D)inventory master file.

Question 23

A major cost in the purchasing function is the number of purchase orders processed.One technique that may reduce purchasing-related expenses is to have suppliers compete with each other to meet demand at the lowest price.The name of this technique is

A)an EDI auction.
B)a trading exchange.
C)a reverse auction.
D)a supplier consortium.

Question 24

Under what conditions is MRP more suitable than JIT and vice versa?

Question 25

Ngai Nhung is the sales manager at Hung Technologies.At lunch with the company CEO,Ngai proudly announced that he had received a ________ from a client.The client had just requested a large quantity of components from Hung.

A)blanket purchase order
B)voucher
C)purchase order
D)purchase requisition

Question 26

Once a purchase request is approved,what is the next step?

A)The system creates a purchase order.
B)The accounts payable department approves the purchase request,creating a purchase order.
C)The inventory master file is accessed to find the preferred supplier(s).
D)The department that created the purchase request may buy the requested item(s).

Question 27

Ngai Nhung is the sales manager at Hung Technologies.At lunch with the company CEO,Ngai proudly announced that he had negotiated a(n)________ with a client that represented the customer's long-term commitment to buy components from Hung.

A)purchase order
B)evaluated receipt settlement
C)voucher
D)blanket purchase order

Question 28

When would an MRP inventory approach be preferred to a JIT inventory approach?

A)when a product has a short life cycle
B)when demand for inventory is fairly predictable
C)when demand for inventory is very unpredictable
D)MRP is always a preferred method over JIT.

Question 29

Materials requirements planning (MRP)

A)reduces the uncertainty about when materials are needed,thereby reducing the need to carry large levels of inventory.
B)is able to compute exactly the cost of purchasing by taking into account all costs associated with inventory carrying.
C)requires vendors to deliver inventory to the production site exactly when needed and in the correct quantities.
D)None of the above is correct.

Question 30

________ attempts to minimize or eliminate carrying and stockout costs.

A)Just-in-time inventory
B)Materials requirements planning
C)Economic order quantity
D)Evaluated receipt settlement

Question 31

a)What is the major cost driver in the purchasing function? b)Describe how information technology can be used to control this cost driver.

Question 32

Identify the department below that should not be able to submit a purchase requisition.

A)Marketing
B)Production
C)Inventory Control
D)None of the above

Question 33

What is a key feature of materials requirements planning (MRP)?

A)minimize or entirely eliminate carrying and stockout costs
B)reduce required inventory levels by scheduling production rather than estimating needs
C)determine the optimal reorder point
D)determine the optimal order size

Question 34

The traditional approach to inventory management generally involves

A)high stockout costs.
B)minimizing item cost.
C)receiving goods or services just prior to the time they are needed.
D)maintaining inventory levels so that production can continue even if inventory use is greater than expected.

Question 35

Duc An Incorporated provides free coffee to employees.Starbucks delivers coffee packages,sugar,creamer,and filters each week.Every month,Starbucks sends Duc An an invoice.This arrangement is best described as a

A)set purchase order.
B)fixed purchase order.
C)blanket purchase order.
D)standard purchase order.

Question 36

Discuss the differences between EOQ,MRP,and JIT.

Question 37

Just-In-Time (JIT)inventory is best characterized by

A)frequent deliveries of large quantities to be held at the work centers.
B)frequent deliveries of smaller quantities of items to the work centers.
C)less frequent deliveries of large quantities of goods to central receiving.
D)infrequent bulk deliveries of items directly to work centers.

Question 38

Which of the following is least likely to be a major criterion in vendor selection?

A)prices of goods
B)credit rating of the vendor
C)quality of goods
D)ability to deliver on time

Question 39

Which electronic files are either read or updated when goods are ordered from a vendor?

A)inventory,vendors,and accounts payable
B)vendors and accounts payable
C)inventory,vendors,and open purchase orders
D)open purchase orders and accounts payable

Question 40

Define and describe the EOQ approach to inventory management.

Question 41

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.

Question 42

Although there are some similarities between JIT and MRP,identify one major difference below.

A)production scheduling
B)reducing the opportunity for inventory theft
C)reducing inventory carrying costs
D)requires more analysis than EOQ

Question 43

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

Question 44

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.

Question 45

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.

Question 46

It is important to physically count inventory,at least periodically,even in a perpetual inventory system.

Question 47

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

Question 48

Ideally,inventory purchases occur in response to ________ in a JIT inventory system.

A)customer demand
B)optimal demand
C)forecast demand
D)supplier demand

Question 49

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 their products,will likely employ

A)a just-in-time inventory system.
B)the economic order quantity.
C)materials requirements planning.
D)a reorder point.

Question 50

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

Question 51

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.

Question 52

The EOQ approach to managing inventory has been gaining popularity in recent years.

Question 53

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.

Question 54

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.

Question 55

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

Question 56

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

Question 57

Under the EOQ inventory approach,carrying costs are usually ignored for low-cost/low-usage items.

Question 58

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

Question 59

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.

Question 60

Identify possible problems associated with receiving goods and appropriate actions in response to the problems.

Question 61

Identify the 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

Question 62

A receiving clerk notes that a delivery of 10 units has been received,but the purchase order specified 12 units.A debit memo will need to be prepared to adjust for the difference between the quantity ordered and received.Who should prepare this document?

A)the receiving clerk
B)the controller
C)the vendor
D)the purchasing department manager

Question 63

Identify in which of the following scenarios a company could adjust the balance due the vendor by issuing a debit memo.

A)quantity different from that ordered
B)damage to the goods
C)goods that fail inspection for quality
D)All of the above are possible scenarios.

Question 64

Which of the following is generally not shown on a receiving report?

A)price of the items
B)quantity of the items
C)purchase order number
D)counted and inspected by

Question 65

In a supplier audit,what are some of the red flags that could indicate potential supplier's problems?

Question 66

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.

Question 67

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.

Question 68

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.

Question 69

Vendor invoices are approved by the ________,which reports to the ________.

A)purchasing department;controller
B)accounts payable department;treasurer
C)purchasing department;treasurer
D)accounts payable department;controller

Question 70

A reverse auction would likely be best suited to the purchase of

A)central processing units (CPUs).
B)soybeans.
C)designer clothing.
D)automobiles.

Question 71

A(n)________ system posts an approved invoice to the vendor account and stores it in an open invoice file until payment is made by check.

A)nonvoucher
B)voucher
C)cycle
D)evaluated receipt settlement

Question 72

Usually the supplier will give the buyer permission to correct the invoice for any discrepancies in quantity.In the case of damaged or poor-quality goods,a document called a(n)________ is prepared after the supplier agrees to take back the goods or to grant a price reduction.

A)credit memo
B)debit memo
C)adjustment memo
D)return memo

Question 73

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.

Question 74

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.

Question 75

Ngai Nhung is the sales manager at Hung Technologies.At lunch with the company CEO,Ngai complained that a recent shipment from a vendor had been unsatisfactory and was returned.As a result,Hung's purchasing manager needed to send a ________ to the supplier.

A)debit memo
B)purchase order
C)blanket purchase order
D)receiving report

Question 76

The disbursement voucher and supporting documents are sent to the ________ for payment prior to the due date.

A)cashier
B)treasurer
C)controller
D)accounts payable department

Question 77

A disbursement voucher contains

A)a list of outstanding invoices.
B)the net payment amount after deducting applicable discounts and allowances.
C)the general ledger accounts to be debited.
D)All of the above are correct.

Question 78

What is one of the best ways to improve the overall efficiency and effectiveness of the receipt and storage of ordered items?

A)requiring all suppliers to have the carrier verify quantities and item numbers before shipment
B)requiring all suppliers to include RFID tags on their items
C)requiring all suppliers to use EDI to expedite the receiving department function
D)requiring all delivery trucks to have satellite data terminals to expedite the receiving department function

Question 79

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

Question 80

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