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Unformatted text preview: CHAPTER 2 QUESTIONS 1. The two major objectives of materials con- trol are (1) physical control or safeguarding the materials and (2) control of the invest- ment in materials. 2. The controls established for safeguarding materials include limiting access to the ma- terials area, segregating the duties of em- ployees involved with materials, and assur- ing that materials records are being main- tained accurately. Limiting access involves placing invent- ories in storage areas that can be entered only by authorized personnel and restricting the release of any material or finished goods to individuals who have properly authorized documents. Control procedures that limit ac- cess to work in process areas should be es- tablished within each department or produc- tion station. The segregation of duties involves as- signing different people to different func- tions. Employees assigned to purchasing should not also be assigned to receiving, storage, or recording functions, etc. The accurate recording of purchases and issuances of materials facilitates com- paring the recorded materials on hand to the actual materials on hand. If a substantial dif- ference between the recorded and actual quantities is discovered, it can be quickly de- termined and investigated. 3. Management should consider production and working capital requirements along with alternative uses of available funds which might yield a greater return. Consideration should also be given to the cost of materials handling, storage, and insurance protection against fire, theft, and other casualty losses. In addition, the possibility of loss from dam- age, deterioration, and obsolescence should not be overlooked. 4. Order point is the time to place an order for additional material because the level of stock has reached a predetermined minim- um established by management. 5. In order to determine an order point, the in- formation available should include the: (1) anticipated daily usage of the material, (2) lead time interval, and (3) safety stock required. The anticipated usage requirement should be founded upon the number of units expec- ted to be completed daily and the quantity of material each completed unit will require. The lead time interval involves the typic- al period of time required between placing the order and receiving the shipment. The safety stock is the minimum stock on hand needed to prevent running out of stock due to errors in calculations of usage, delivery delays, poor quality of merchandise received, and so on. 6. The economic order quantity (EOQ) is the calculated size of an order which minimizes the total cost of ordering and carrying the in- ventory over a specified period of time. It is a function of the cost of placing an order, the number of units required annually, and the carrying cost per unit of inventory 7. The cost of an order includes the salaries and wages of employees who purchase, re- ceive, and inspect materials; the expenses incurred for telephone, fax usage, postage,...
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This note was uploaded on 02/16/2009 for the course ACCOUNTING ACC205 taught by Professor Garcia during the Spring '08 term at College of Southern Nevada.

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