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Unformatted text preview: CHAPTER 9 DISCUSSION QUESTIONS 9-1 Q9-1. The most frequently used documents in the procurement and use of materials are pur-chase requisitions, purchase orders, receiv-ing reports, materials requisitions, bills of materials, and materials ledger records. Q9-2. The invoice should be routed to the Accounting Department immediately upon receipt. A copy of the purchase order and a copy of the receiving report with an inspection report should be compared by the accounting clerk. When the invoice is found to be correct in all aspects or has been adjusted for errors or rejects, the accounting clerk approves the invoice, attaches it to the underlying docu-ments if they are in hard-copy form, and sends these documents to another clerk for the preparation of the voucher. Q9-3. Inventoriable cost should include all costs incurred to get the product ready for sale to the customer. It includes not only the net purchase price but also the other associated costs, such as freight-in, incurred up to the time products are ready for sale to the customer. Q9-4. No, administration costs are assumed to expire with the passage of time and do not attach to the product. Furthermore, adminis-trative costs do not relate directly to invento-ries, but are incurred for the benefit of all functions of the business. Q9-5. The three key questions to answer in design-ing an inventory control system are: (a) how much to ordereconomic order quantity (b) when to orderorder point (c) safety stock required Q9-6. The firm benefits from these techniques by having a consistent, standardized approach to its inventory management. Inventory costs and service to customers will be optimally balanced. Q9-7. The purpose of an economic order quantity model is to determine the optimum quantity to order or produce when filling inventory needs. The optimum quantity is defined as that quantity that minimizes the cost of inven-tory management. Q9-8. The decision concerning how much to order or produce at a given time involves a compro-mise between inventory carrying costs and ordering or setup costs. Examples of inven-tory carrying costs are: interest on the money invested in inventories that could have been invested elsewhere, property tax and insur-ance, warehousing or storage, handling, dete-rioration, and obsolescence. Ordering costs include the cost of preparing the requisition and purchase order, receiving the order, and accounting for the order. Setup costs involve the costs of setting up equipment to make the actual production runs. For all these costs, only those that vary with activity are relevant to the EOQ model. Q9-9. The consequences of maintaining inadequate inventory levels include higher purchasing, handling, and transportation costs, loss of quantity discounts, production disruptions, inflation-related price increases when pur-chases are deferred, and lost sales and cus-tomer goodwill....
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This note was uploaded on 03/15/2012 for the course ACCOUNTING 620 taught by Professor Smith during the Spring '11 term at Alabama A&M University.

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