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Test bank accounting information system by turner 11 chapter

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ACCOUNTING INFORMATION SYSTEMS
CONTROLS AND PROCESSES
TURNER / WEICKGENANNT
CHAPTER 11: Conversion Processes and Controls
TEST BANK – CHAPTER 11– TRUE / FALSE
1. Because of the manpower and computer programmers required to control robotics, robotics has
had little influence manufacturing.
2. Resources required in the conversion process include materials, labor, overhead, and fixed
assets.
3. Even if a firm is a service or sales firm it may conduct some sort of manufacturing operation.
4. The major function within the conversion process is the logistics function.
5. The three primary components of the logistics function are 1) planning, 2) production, and
3) sales.
6. The research and development effort is part of the planning process rather than the
operations process.
7. A bill of materials lists both physical items and skill requirements needed to construct an item of
inventory.
8. Maintenance and control is concerned with maintaining the capital resources used to support
production, including production facilities and other fixed assets.

9. Routing is the issuance and movement of materials through the sales process.
10. Inventory warehousing involves managing the holding area for finished goods awaiting sale.
11. The final hub in the logistics function is sales.
12. Standard costs are expected costs based on projections of a product’s required resources.
13. Standard costs include direct materials, direct labor, and overhead.
14. Perpetual inventory systems involve updating the inventory and cost of sales accounts only at the
end of the period.
15. Because conversion processes involve the physical movement of inventory throughout the
operating facility and these movements are normally accomplished by material handling personnel
the burden of sufficient internal controls is not required.
16. Complete, up-to-date, and accurate documentation on production orders is needed to support the
conversion process.


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17. Physical controls should be in place in the company’s storerooms, warehouses, and production
facilities in order to safeguard the inventories held therein.
18. When perpetual inventory concepts are utilized, a physical inventory count to determine the
quantity of inventory on hand is not required.
19. To ensure that delays and shutdowns in one part of the manufacturing facility do not affect
another part of the manufacturing facility IT integration of all or part of the company’s
processing applications is usually not accomplished.
20. Computer-aided manufacturing (CAM) involves the complete automation of the production
process, including the full replacement of human resources with computers.
21. MRP stands for Management Resource Projections.
22. Just-in-time (JIT) production systems are concerned with minimizing or eliminating inventory
levels of all inventory items.
23. Earnings management is the act of misstating financial information in order to improve financial
statement results.
24. Absorption costing involves the inclusion of both variable and fixed costs in the determination of
unit costs for ending inventories and cost of goods sold.
25. Management should not consider the moral implications of replacing human resources with
electronic resources based on the cost/benefit concept.
26. The systems, processes, and internal controls are part of a corporate governance structure.
27. Corporate governance requires proper financial stewardship, and since inventories, fixed
assets, and office supplies are the largest assets reported on a balance sheet, financial
stewardship in these areas is especially important.
ANSWERS TO TEST BANK - CHAPTER 11 - TRUE/FALSE:
1.


2.
3.
4.
5.
6.

F
F
T
T
F
T

7.
8.
9.
10.
11.
12.

F
T
F
T
F
T

13.
14.
15.
16.
17.
18.

T
F
F
T
T
F

19.
20.
21.
22.
23.
24.

F
T
F
T
T
T

25. F
26. T
27. F


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TEST BANK – CHAPTER 11 – MULTIPLE CHOICE
28. A company’s conversion processes includes all of the following except:
A. materials.
B. office supplies.
C. labor.
D. overhead
29. A company must have systems in place to accomplish all of the following except:
A. capture data.
B. vocalize data.
C. record data.
D. summarize data.
30. The conversion process is initiated when the company recognizes:
A. the receipt of raw materials.
B. the shipment of finished goods to customers.
C. the need to conduct operations.
D. None of the above.
31. Overhead includes all of the following except:
A. various other expenses necessary to run the operating facility.
B. the president’s salary.
C. fixed assets.
D. indirect labor and materials.
32. The major activities within the conversion process include all but
A. strategic planning that supports the company’s operational goals.
B. optimizing the use of the employees, property, and inventories that are needed in
operations.
C. controlling production flows, ensuring product quality.
D. and preparing the related cost accounting and financial accounting records.
33. Which of the following company activities would not be considered a productive activity?
A. The manufacture of automobiles.
B. The treatment of patients in a medical facility.
C. Providing consulting services.
D. All of the above, A, B, and C, are considered productive activities.
34. The process of logical, systematic flow of resources throughout the organization is referred to
as:
A. logistics.
B. planning.
C. reporting.
D. sales forecast.


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35. The component of the logistics function that directs the focus of operations is referred to as:
A. logistics.
B. planning.
C. reporting.
D. sales forecast.
36. The form that specifies the components of a product, including descriptions and quantities of
materials and parts needed is the:
A. operations list.
B. bill of materials.
C. engineering.
D. capital budgeting.
37. The form that describes the chain of events that constitute a product’s production is referred to
as the:
A. operations list.
B. bill of materials.
C. engineering.
D. capital budgeting.
38. The process that plans the timing for production activities is referred to as:
A. operations list.
B. bill of materials.
C. scheduling.
D. capital budgeting.
39. The form that authorizes production activities for a particular sales order or forecasted needs is
referred to as the:
A. production schedule.
B. production orders.
C. maintenance and control process.
D. human resources process.
40. The process that is concerned with maintaining the capital resources used to support production
is referred to as:
A. the production schedule.
B. production orders.
C. maintenance and control.
D. the human resources process.
41. A ___________________ outlines the specific timing required for a sales order, including the
dates and times designated for the production run.
A. production schedule
B. production orders schedule
C. maintenance and control schedule
D. human resources schedule


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42. The responsible for managing the placement and development of sufficient qualified personnel
which includes hiring and training workers as well as maintaining records of their performance is
the task of:
A. the production schedule department.
B. the production orders department.
C. the maintenance and control department.
D. the human resources department.
43. The responsible for managing and recording the movement of inventory in the many different
directions that it may go throughout the conversion process is assigned to the:
A. production schedule department.
B. inventory control department.
C. maintenance and control department.
D. the human resources department.
44. The issuance and movement of materials into the various production phases is referred to as:
A. production scheduling process.
B. inventory control process.
C. the routing process.
D. the production orders process.
45. Which document provides the descriptions and quantities of materials taken into production for a
specified sale or other authorized production activity?
A. The routing slip.
B. The shipping notice.
C. The purchase requisition.
D. The sales order.
46. Inventory ___________________ managing the holding area for finished goods awaiting sale.
A. purchase order
B. shipping notice
C. purchase requisition
D. warehousing
47. The major function within the conversion process is the:
A. sales order function.
B. sales forecast function.
C. logistics function.
D. reporting function.
48. The component of the logistics function that directs the focus of operations is the:
A. operations component.
B. resource management component.
C. planning component.
D. the sales component.


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49. The planning component of the logistics function has all of the following elements except:
A. maintenance and control.
B. engineering.
C. scheduling.
D. capital budgeting.
50. The resource management component of the logistics function has all of the following elements
except:
A. maintenance and control.
B. human resources.
C. inventory control.
D. capital budgeting.
51. The operations component of the logistics function has which of the following elements?
A. maintenance and control.
B. production.
C. inventory control.
D. capital budgeting.
52. The responsibility to conduct make/buy decisions is usually given to:
A. engineering.
B. capital budgeting.
C. operations.
D. research and development.
53. Capital
A.
B.
C.
D.

budgeting:
is responsible for the issuance of stocks and bonds to finance operations.
plans the capital resources needed to support operations.
is responsible for the procurement of production materials.
is not a function of a company once established and functioning.

54. Engineering is responsible for:
A. designing the product while operations is responsible the bill of materials and the
operations list.
B. designing the plant and equipment used in manufacturing.
C. is responsible for the procurement of production equipment.
D. designing the product and creating the bill of materials and the operations list.
55. The bill
A.
B.
C.
D.

of materials is the:
cost of raw materials purchased from a vendor.
document of instructions utilized to assemble a product.
form that specifies the components of a product.
designing the product and creating the bill of materials and the operations list.

56. The operations list is the:
A. schedule of production for the day, week, or month as specified by the company.
B. document of instructions utilized to assemble a product.
C. form that specifies the components of a product.
D. designing the product and creating the bill of materials and the operations list.


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57. Scheduling:
A. plans the timing for acquisition of fixed assets.
B. does not take into account machine breakdowns.
C. takes into consideration all the open sales orders.
D. does not take inventory needs.
58. Production orders:
A. outline the specific timing required for sales orders.
B. authorize production activities for a particular need or order.
C. are forecasts of needs based on known and anticipated sales.
D. are issued by the engineering department to correct product deficiency issues.
59. A production schedule:
A. does not contain requirements due to sales forecasts.
B. does not contain information from the bill of materials.
C. contains information from the operations list.
D. are issued by the maintenance and control department.
60. The department responsible for training production personnel is the:
A. production department.
B. human resources department.
C. engineering department.
D. None of the above.
61. Economic order quantity (EOQ) is a function:
A. of the purchasing customer or client.
B. of the sales force to provide the purchasing customer or client with the greatest value.
C. of the responsibility of engineering through the operations list.
D. associated with inventory control.
62. Routing is:
A. the
B. the
C. the
D. the

path electronic messages follow in the inventory system.
issuance and movement of materials into the various production phases.
physical movement of materials from the point of sale to the customer.
physical movement of materials from the vendor to the inventory stores facility.

63. Inventory status reports:
A: are generated only for raw materials.
B. are only generated for finished goods.
C. are prepared at various stages of the production process.
D. are only generated for work in process.
64. Select the true statement from the choices below.
A: Inventory stores and warehousing are both concerned with raw materials.
B. Neither inventory stores nor warehousing are concerned with raw materials.
C. Inventory stores is concerned with raw materials and warehousing is concerned with
finished goods.
D. Inventory stores is concerned with finished goods and warehousing is concerned with raw
materials.


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65. The term “operations” is commonly used to refer to:
A: the main function of the business.
B. any function of the business which generates revenues.
C. only those functions of the business accomplished by the operations department.
D. only those functions which move inventory through the production cycle.
66. Operations may be performed by all of the following except:
A: continuous processing of homogeneous products.
B: batch processing.
C. custom, made-to-order processing.
D. Each of the above is a valid form of operations.
67. The final hub in the logistics function is:
A: packaging.
B: quality control.
C. sales.
D. shipping to the customer.
68. Rework refers to:
A. generating a better quote for a customer.
B. overhaul of a manufacturing machine.
C. additional procedures to bring a product up to specifications.
D. parts that are beyond repair at any cost.
69. The final hub in the logistics function which involves a follow-up to production, where the
products are inspected before they are moved to the warehouse or shipping area is referred to
as:
A. quality control.
B. shipping notice.
C. purchase requisition.
D. warehousing.
70. The expected cost based on projections of a product’s required resources which includes direct
materials, direct labor and overhead is referred to as:
A. quality control costs.
B. sales order cost.
C. rework costs.
D. standard costs.
71. A system which involves recording purchases of raw materials inventory, recording all the
components of work in process, and recording the total cost of sales for products completed and
sold is referred to as:
A. a perpetual inventory system.
B. the accounting information system.
C. a periodic inventory system.
D. None of the above.


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72. Perpetual inventory systems:
A. record changes in inventory categories only at the end of each period.
B. record changes in inventory categories only when sales are made.
C. record changes in inventory categories whenever material is moved from one category to
another.
D. does not address raw materials.
73. Variances represent the differences between:
A. actual costs and the standard costs applied.
B. raw materials ordered and raw materials received.
C. the sales targets and sales accomplishments.
D. actual quantity on hand and quantity according to the inventory system.
74. Standard costs are:
A. the responsibility of production accountants.
B. the expected costs based on required resources.
C. the costs normally paid for a component.
D. are the prices the customer is expected to pay upon sale.
75. Standard costs take into consideration all of the following except:
A. the cost of materials utilized to maintain production equipment.
B. the cost of labor used to operate the production machinery.
C. the cost of the sales manager’s salary.
D. factory overhead items that cannot be directly correlated to product production.
76. Perpetual inventory systems:
A. are only updated at the end of each fiscal period.
B. are concerned only with finished goods.
C. are not concerned with raw materials.
D. involve every level of inventory necessary for production.
77. Periodic inventory systems:
A. are only updated at the end of each fiscal period.
B. are concerned only with finished goods.
C. are not concerned with raw materials.
D. may not reflect current inventory levels.
78. Variances:
A. represent the differences between actual costs and the standard costs applied.
B. represent the difference between design specifications and production results.
C. represent flaws in the production results.
D. Each of the answers, A, B, and C are correct.
79. Variances:
A. are only investigated if they are unfavorable.
B. are always investigated.
C. will always result in the improvement of the logistics function.
D. may not result in any changes in the logistics function.


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80. Which of the following is not a responsibility given to the individuals making purchases for the
company?
A. Purchasing raw materials for production.
B. Specifying the order and sequence of payments to vendors.
C. Selecting vendors.
D. Specifying the quantities to be ordered.
81. Which of the following activities in the conversion process does not require express authorization?
A. Initiation of production orders.
B. Issuance of materials into the production process.
C. Transfer of finished goods to the warehouse or shipping areas.
D. Initiation of a sales order.
82. Segregation of duties is accomplished by which of the following?
A. Accounting personnel having restricted access to physical inventory.
B. Warehouse personnel signing all documents related to material movements.
C. Production personnel restricted to one manufacturing station at all times.
D. None of the above.
83. Security of assets and documents include all of the following except:
A. water sprinklers.
B. adequate insurance coverage.
C. restricted movement of office supplies.
D. security guards.
84. In inventory systems, when the actual quantity and the accounting records quantity are
compared it is referred to as:
A. perpetual inventory.
B. inventory resolution.
C. the physical inventory reconciliation.
D. periodic inventory.
85. Cost-benefit can be defined as:
A. Gross profit after sales are made.
B. cameras and security guards to protect construction materials in a restricted access
warehouse.
C. verifying inventory levels at the end of each working shift.
D. alarm systems and vaults for fine jewelry inventories.
86. The activity in the conversion process that does not require express authorization is:
A. the initiation of production orders.
B. the issuance of materials into the production process.
C. the transfer of finished goods to the warehouse or shipping areas.
D. the movement of production pieces from one stage of production to the next.


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87. Within
A.
B.
C.

the logistics function, segregation of duties means:
one person should not have both inventory and accounting responsibilities.
one person should not have production responsibilities over more than one station.
one person should not have quality assurance responsibilities over a work station other
than his own.
D. each person can only have one duty or function in the production function.

88. Physical controls include all but:
A. fences and alarm systems.
B. security guards.
C. high tech security tools.
D. Each of the answers, A, B, and C are correct.
89. Physical inventory counts should only include:
A. finished goods.
B. finished goods and raw materials.
C. finished goods and work-in-process.
D. raw materials, work-in-process, and finished goods.
90. When there is a difference between the inventory records quantity and the physical count of
inventory:
A. there is a variance.
B. the difference can be ignored if minor.
C. the difference is resolved through inventory reconciliation.
D. the difference is ignored if the physical quantity exceeds inventory record quantity.
91. Which of the following factors does not influence the need to safeguard and monitor inventory
movement?
A. Inconsistent or high levels of inventory movement.
B. If the inventory is held at various locations.
C. If a company’s inventory items are difficult to differentiate.
D. Each of the answers, A, B, and C are correct.
92. The ________________ software allows engineers to work with advanced graphics at electronic
work stations to create 3-D models that depict the production environment.
A. computer-integrated manufacturing systems (CIMs)
B. computer aided design (CAD)
C. material resource planning (MRP)
D. computer aided manufacturing (CAM)
93. _________________ involves the automated scheduling of production orders and movement of
materials in the production process.
A. Computer-integrated manufacturing systems (CIMs)
B. Computer aided design (CAD)
C. Material resource planning (MRP)
D. Computer aided manufacturing (CAM)


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94. _____________ integrates all of the conversion processes to allow for minimal disruptions due to
reporting requirements or inventory movement issues.
A. Computer-integrated manufacturing systems (CIMs)
B. Computer aided design (CAD)
C. Material resource planning (MRP)
D. Computer aided manufacturing (CAM)
95. IT systems permit or allow all of the following except:
A. automatic computation of materials requirements based on sales orders.
B. reduced internal security measures.
C. automatic updating of inventory status reports
D. timely transfer of inventories throughout the process,
96. Computerization of the conversion process results in all except:
A. Automatic computation of materials requirements based on purchase orders.
B. Timely transfer of inventories throughout the process.
C. Automatic updating of inventory status reports.
D. Automatic computation of materials requirements based on sales orders
97. Select the false completion to the statement which starts “A computer-based conversion
process:”
A. requires less data input into the system.
B. automatically prepares financial accounting entries and cost accounting reports.
C. yields greater benefits in terms of workforce efficiency.
D. permits more systematic scheduling which allows for greater flexibility.
98. Select the true statement.
A. Computer-aided manufacturing (CAM) requires computer-aided design.
B. Computer-aided design is always two dimensional.
C. Computer-aided design may be three dimensional.
D. Computer-aided design requires additional manpower during assembly.
99. Just-in-time (JIT) production systems:
A. require close communications with the engineering department.
B. do not require close communications with vendors.
C. require closely controlled inventory levels.
D. do not require additional monitoring.
100. The act of misstating financial information in order to improve financial statement results is
referred to as:
A. just in time production systems.
B. manufacturing resource planning.
C. earning management.
D. absorption costing.


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101.

_____________ involves the inclusion of both variable and fixed costs in the determination of
unit costs for ending inventories and cost of goods sold.
A. Just in time production systems
B. Manufacturing resource planning
C. Earning management
D. Absorption costing

102. Ethical issues of manufacturing include all except:
A. reassignment or retraining vice termination due to automation.
B. absorption costing.
C. production of excessive inventory levels.
D. earnings management.
103. Absorption costing requires:
A. production inefficiencies to be immediately identified.
B. production to absorb the cost of waste and yield factors not considered in other costing
methods.
C. includes both variable and fixed costs in unit costs.
D. the transfer of values to the income statement through inventory accounts.
104. Earnings management:
A. is the act of misstating financial information.
B. is the goal of cost/benefit relationships.
C. accomplished through the proper management of inventory and sales.
D. is an ethical goal of management.
105. Manpower displacement through automation:
A. is considered a benefit through cost/benefit analysis.
B. should be a concern of management.
C. is the goal of proper engineering.
D. seldom results in termination of employees.
106. Corporate governance requires all of the following except a/an:
A. system.
B. process.
C. product.
D. internal control system.
107. When
A.
B.
C.
D.

the proper tone of corporate governance is in place:
encouraging ethical conduct is unnecessary.
effectiveness is not improved.
risk of fraud tends to increase.
proper stewardship of assets increases.


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ANSWERS TO TEST BANK - CHAPTER 11 - MULTIPLE CHOICE:
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.

B
B
C
B
A
D
A
B
B
A
C
B
C
A
D
B

44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.

C
A
D
C
C
A
D
B
D
B
D
D
C
C
B
C

60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.

B
D
B
C
C
A
D
B
C
A
D
A
C
A
B
C

76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.

D
D
A
D
B
D
A
C
C
D
D
A
D
D
C
D

92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.

B
C
A
B
A
A
C
C
C
D
B
C
A
B
C
D


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TEST BANK - CHAPTER 11 – END OF CHAPTER QUESTIONS:
108. Manufacturing has changed in recent years as a result of each of the following factors except:
A. globalization
B. technological advances
C. increased competition
D. lack of economic prosperity
109. The
A.
B.
C.
D.

term conversion processes is often used synonymously with
operations.
production.
manufacturing.
All of the above.

110. Which of the following activities is not part of the planning component of the logistics function?
A. Research and development
B. Capital budgeting
C. Human resource management
D. Scheduling
111. Which of the following activities is an inventory control activity?
A. Engineering
B. Maintenance
C. Routing
D. Quality control
112. Which of the following statements concerning an operations list is true?
A. It is an engineering document that describes the chain of events within a company’s
conversion process.
B. It is an engineering document that specifies the descriptions and quantities of component
parts within a product.
C. It is a capital budgeting document that describes the chain of events within a company’s
conversion process.
D. It is a capital budgeting document that specifies the descriptions and quantities of
component parts within a product.
113. Which of the following terms relates to the control of materials being held for future production?
A. Routing
B. Work-in-process
C. Stores
D. Warehousing


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114. Which of the following questions is most likely to be found on an internal control questionnaire
concerning a company’s conversion processes?
A. Are vendor invoices for materials purchases approved for payment by someone who is
independent of the cash disbursements function?
B. Are signed checks for materials purchased mailed promptly without being returned to the
department responsible for processing the disbursement?
C. Are approved requisitions required when materials are released from the company’s
warehouse into production?
D. Are details of payments for materials balanced to the total posted to the general ledger?
115. When additional procedures are necessary to bring a defective product up to its required
specifications, this is referred to as
A. rework.
B. scrap.
C. work-in-process.
D. variance reporting.
116. A firm expects to sell 1000 units of its best-selling product in the coming year. Ordering costs for
this product are $100 per order, and carrying costs are $2 per unit. Compute the optimum order
size, using the EOQ model.
A. 10 units
B. 224 units
C. 317 units
D. 448 units
117. Which of the following internal controls is typically associated with the maintenance of accurate
inventory records?
A. Performing regular comparisons of perpetual records with recent costs of inventory items
B. Using a just-in-time system to keep inventory levels at a minimum
C. Performing a match of the purchase request, receiving report, and purchase order before
payment is approved
D. Using physical inventory counts as a basis for adjusting the perpetual records
118. If a manufacturing company’s inventory of supplies consists of a large number of small items,
which of the following would be considered a weakness in internal controls?
A. Supplies of relatively low value are expensed when acquired.
B. Supplies are physically counted on a cycle basis, whereby limited counts occur quarterly
and each item is counted at least once annually.
C. The stores function is responsible for updating perpetual records whenever inventory items
are moved.
D. Perpetual records are maintained for inventory items only if they are significant in value.
119. The
A.
B.
C.
D.

goal of a physical inventory reconciliation is to
determine the quantity of inventory sold.
compare the physical count with the perpetual records.
compare the physical count with the periodic records.
determine the quantity of inventory in process.


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120. Which of the following is not considered a benefit of using computerized conversion systems?
A. Automatic computation of materials requirements
B. Increased sales and cost of sales
C. Increased efficiency and flexibility
D. Early error detection and increased accuracy
121. Which of the following represents a method of managing inventory designed to minimize a
company’s investment in inventories by scheduling materials to arrive at the time they are
needed for production?
A. The economic order quantity (EOQ)
B. Material resource planning (MRP)
C. First-in, first-out (FIFO)
D. Just-in-time (JIT)
122. For which of the following computerized conversion systems is Wal-Mart well known?
A. CAD/CAM
B. MRP-II
C. CIMs
D. JIT
ANSWERS TO TEST BANK - CHAPTER 11 – END OF CHAPTER QUESTIONS:
108. D
109. D
110. C

111. C
112. A
113. C

114. C
115. A
116. C

117. D
118. C
119. B

120. B
121. D
122. D

TEST BANK - CHAPTER 11 - SHORT ANSWER QUESTIONS
123. What are the three resources that an organization must have to conduct a conversion (or
transformation) process?
Answer: The three resources are materials, labor, and overhead.
124. Do conversion processes occur in manufacturing companies only? Why or why not?
Answer: All companies have a conversion process. That is, all companies use resources to provide
an output for customers. Even in the case of service companies, or non-profit organizations, there
are conversion processes. Manufacturing companies typically have more complex conversion
processes.
125 Why are conversion activities typically considered routine data processes?
Answer: Within conversion processes, there are daily, routine processes that occur. For example,
laborers may assemble parts every day. Since these processes occur daily, and repetitively, they
are routine.
126. Differentiate between a bill of materials and an operations list.
Answer: The bill of materials is a list of materials and components that are ingredients to
manufacture a particular product. The operations list is the set of steps or operations, in the
necessary sequence, to manufacture a product. The operations list includes the locations,
resources, and standard timings.


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127. Differentiate between the roles of the engineering and the research and development
departments.
Answer: Research and development focuses on improvement of products or product lines. It is
intended to develop new products, or improvements to existing products. Engineering designs the
detailed specifications for each product to be manufactured. Research and development would
have a more future focus that engineering.
128. What are the two types of documents or reports are likely to trigger the conversion process?
Answer: A sales order or a sales forecast would trigger the conversion process. Manufacturing
would not be started until a need for products was documented on either a sales order or sales
forecast.
129. What are the three primary components of logistics?
Answer: They are planning, resource management, and operations. Planning is concerned with
which products will be made, how many of each of these products, which resources are required,
and the timing of production. Resource management is the monitoring and controlling of the use
of resources such as the facilities, human resources, and inventory. Operations is the day-to-day
performance of production activities.
130. What types of information must be taken into consideration when scheduling production?
Answer: The information that should be considered includes all open sales orders, inventory
needs, and resources available.
131. Differentiate between a routing slip and an inventory status report.
Answer: A routing slip documents materials removed from the storeroom and placed into
production. An inventory status report documents the extent of work completed and the levels of
inventory at the various stages of completion.
132. What are the conversion responsibilities of the maintenance and control, inventory control,
inventory stores, and human resources departments?
Answer: Maintenance and control maintains the fixed assets such as production facilities,
machinery, equipment, and vehicles. Inventory control manages and records the movement of
materials and inventory. Inventory stores controls the raw materials held in storage that will
eventually be used to produce goods.
133. What is the purpose of an inventory status report?
Answer: An inventory status report documents the extent of work completed and the levels of
inventory at the various stages of completion.
134. What is the overall goal of the inventory control department?
Answer: Its purpose is to manage and record the movement of materials and inventory
throughout the production process.
135. What is the purpose of the quality control department?
Answer: The purpose is to inspect products and to allow products that meet quality standards to
be moved to a warehouse or shipping area. Products that do not meet quality standards are
returned to production for rework or they are scrapped.


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136. What is the purpose of determining standard costs?
Answer: Standard costs are used as benchmarks of comparison for actual costs. Comparing actual
costs to standard costs allows managers to determine whether excessive resources are being
used in production.
137. What should be done when unfavorable variances are discovered?
Answer: These differences (variances) help pinpoint problem areas in production. Since
unfavorable variances result from actual costs that exceed standard costs, they may indicate that
excessive resources are being used in production. This information could be used to improve
logistics in the conversion processes.
138. Why would perpetual inventory records be preferable to periodic inventory records in a
manufacturing company?
Answer: With perpetual inventory records, management always has up-to-date information about
inventory levels. Having such information improves the ability to plan production schedules and to
plan purchases of material.
139. Which three activities in the conversion process should require specific authorization before they
are begun?
Answer: The three processes that should require specific authorization are: initiation of production
orders; issuance of materials to production; and transfer of finished goods.
140. Why is it important to separate the functions of inventory control and the production stations?
What could go wrong if these functions were not separated?
Answer: Inventory control maintains records of inventory, while production stations have custody
of materials during production. Custody duties and recording duties for raw materials and good
being produced should always be segregated. If these duties are not segregated, one person has
both custody and record keeping duties. That person could steal materials or goods and alter
records to cover up the theft.
141. Why is it so important that variance reports be prepared in a timely manner?
Answer: Variances serve as independent checks on the accuracy and completeness of production
costs. They also indicate to management where changes may need to be made to improve the
production processes. If variances are not examined on a timely basis, they are much less
effective in serving the functions of independent checks.
142. Explain how a physical inventory count would differ in a company using a perpetual inventory
system versus one using a period inventory system.
Answer: In a perpetual inventory system, a physical inventory count is used to verify the accuracy
of inventory records. If a difference exists between the inventory balances and a physical count,
perpetual inventory records are adjusted to ensure that the recorded balances equal the physical
count. In a periodic system of inventory, there is no ending balance in the records and the
physical count is used to determine the balance to place in the inventory control records.


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143. When IT systems are used in conversion processes, what are some of the resulting advantages
to the organization?
Answer: There are often gains in productivity and flexibility, with reductions in time and cost.
Also, IT systems often integrate processing applications, planning, resource management,
operations, and cost accounting. This increases workforce efficiency and reduces paperwork and
costs.
144. How can programmed controls within the IT system for conversion processes enhance internal
controls?
Answer: There are several ways that programmed controls enhance internal control. First,
validation of data can detect input errors before actions are initiated. Also, the system may be
programmed to issue error reports for errors or unauthorized events in production. As examples,
the system could issue error reports if a work-in-process record is not generated for a production
order, or if the same operation is performed at multiple work stations, or when an employee
performs incompatible operations.
145. What is the difference between CAD, CAM, and CIM?
Answer: CAD is computer aided design. By using the computer in the design process, it becomes
more effective and efficient. CAM is computer aided manufacturing. It usually involves computer
controlled robotics to perform production procedures. CIM is computer integrated manufacturing.
It encompasses more than CAM because it integrates financial and cost accounting, along with
computer controlled manufacturing. That is, the computer controls robotic manufacturing, and
also captures, records, and maintains accounting information about production processes.
146. What is the difference between MRP, MRP-II, and ERP?
Answer: All three are software systems. MRP is materials requirement planning and it is used to
plan, coordinate and track materials in a manufacturing process. MRP II is manufacturing
resources planning software. An AMR II system is more comprehensive and includes the ability to
plan, coordinate, and track manufacturing resources. This would include materials, labor, and
facilities. ERP is enterprise resource planning system. It is software that helps plan, coordinate,
and track all enterprise resources. Thus ERP is more encompassing than MRP II, and MRP II is
more encompassing than MRP.
147. How can conversion processes be manipulated to show higher earnings?
Answer: Cost accounting uses absorption costing in which fixed overhead is applied to units
produced. When excess units are produced, these excess units become part of ending inventory,
and the fixed overhead attached to those units is set aside in ending inventory. Therefore, as
more units are added to ending inventory, more fixed overhead is deferred and net income
becomes higher. Income can be manipulated by producing more units than needed and putting
those units in ending inventory.


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TEST BANK - CHAPTER 11 - SHORT ESSAY
148. Consider a company that is in the business of producing canned fruits for grocery stores. (It is
not in the business of growing the fruit.) List the items that would likely be included as this
company’s direct materials, direct labor, indirect materials, and other overhead.
Answer: The direct materials would be many different kinds of fruits such as pineapple, peaches,
grapes, cherries, pears, and mandarin oranges. The direct materials could also include sugar or
fructose. The indirect materials might be water. Direct labor would be those workers that work
directly in the cleaning, peeling, slicing, and packaging of the fruit. Even if these processes are
automated, rather than manual, the workers who operate the slicing or packaging machinery are
direct labor. Other overhead includes other costs of running the canning operation that are not
direct materials or direct labor. This could include utilities, rent, depreciation, machine
maintenance, and supplies.
149. Give some examples of manufacturing processes that would fit into each of the three different
types of production processes: continuous processing, batch processing, and custom made-toorder.
Answer: Continuous processing examples: Soft drink bottling, beer bottling, frozen meal
processing (Lean Cuisine, Banquet), cereal, toy making such as dolls, electronics manufacturing
such as i-pods, power generation as in coal-fired plants.
Examples of batch manufacturing might be: wine making, gasoline production, prescription pill
production. Many things that could be continuous production might also be made in batches for
convenience or efficient use of machinery. For example, equipment to bottle soft drinks might be
used for a few hours to bottle a batch of Pepsi, then be cleaned and set to produce a batch of
Mountain Dew.
Examples of custom, made-to-order manufacturing would include consumer products identified as
customized. For example, BeyondBikes.com makes custom mountain bikes using specific parts
chosen by the customer. Also, many companies make custom manufactured products for other
companies. Examples would include specially machined parts or components, custom made
manufacturing machinery or tools, and print shops that print custom made printed material.
150. List and describe each activity within the planning component of the logistics function.
Answer: Planning includes: research and development, capital budgeting, engineering, and
scheduling. Research and development is the design of new products, or the redesign of existing
products to improve the existing products. Capital budgeting is the planning needed in the outlay
of funds to acquire capital assets. Capital assets include the facilities and equipment needed to
conduct operations. Engineering develops the product specifications for each product, to include
the bill of materials and the operations list. Scheduling sets the timing for production activities.
Scheduling should minimize idle time and schedule products to meet the demands of the sales
forecast or inventory needs.


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151. Some companies use the same facility for both inventory stores and warehousing. Describe the
difference between these two inventory control activities, and how the respective areas might
be distinguished within the facility.
Answer: Inventory stores usually is the term used for raw materials or components used as inputs
to manufacture products. A warehouse is the storage location for finished products. Thus,
inventory stores is the storage for inputs, while the warehouse is storage for the out puts. Since
both are physical storage locations for manufacturing facilities, they have common needs for
security and physical controls, as well as proper and accurate record keeping.
152. For the following activities within the conversion process, place them in sequence that indicates
the order in which they would normally be performed:
• Inspection of goods
• Materials issuance
• Preparation of time sheets
• Preparation of a bill of materials
• Preparation of an inventory status report
• Preparation of a production schedule
Answer:
Preparation of a production schedule
Preparation of a bill of materials
Materials issuance
Preparation of time sheets
Inspection of goods
Preparation of an inventory status report
153. Describe the purpose of each of the following cost accounting records or reports:
• Work-in-process and finished goods inventory accounts
Answer: Both are inventory accounts to track the amount of goods in process and the quantity of
completed goods respectively.
• Bill of materials
Answer: It specifies the quantities needed of each raw material or component to manufacture a
particular product.
• Variance reports
Answer: Variance reports show differences between actual costs and standard costs (expected
costs). These reports are used to pinpoint problem areas that may require logistics changes to
improve the manufacturing process.
• Routing slips
Answer: The routing slip is used to document the movement of material. This tracks the physical
movement of materials in the conversion process.


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154. Describe how a cost accountant would cancel a production order upon completion of the related
product. Why is this important?
Answer: The documentation for the order, called the production order, should be marked in a
manner to show it is complete. For example, a cost accountant might sign a particular line to
show it is completed, or stamp the production order with the word “Completed”. This cancelling of
the document is important so that the exact status of the order is clear and so that the document
may not be misused to commit fraud. For example, a production order not cancelled could be
used to fraudulently begin a new production run so that the products could be stolen.
155. When taking a physical inventory count at a typical manufacturing facility, which category of
inventory (raw materials, work-in-process, or finished goods) is likely to be the most time
consuming to count and determine the relevant costs for? Why?
Answer: Work-in-process is likely to be the most time consuming. This is because the work-inprocess includes all units in production at various stages of completion and these units could be
located at many different work stations or work centers. Tracking the location, quantity, and stage
of completion for each work-in-process unit would be more complex than tracking units of raw
materials or finished goods.
156. Identify several factors that indicate the need for more extensive internal controls covering
conversion processes.
Answer: The factors include: the number of products made; the value or size of products
(valuable or small products are more likely to be stolen), high levels of inventory movement,
inventory held at various locations, and inventories that are difficult to value.


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157. Match the IT systems on the left with their definitions on the right:
• CAD
Answer: B. Electronic workstation including advanced graphics and 3-D modeling of production
processes.
• CAM
Answer: G. Production automation, including use of computers and robotics.
• MRP
Answer: F. Automated scheduling of production orders and materials movement.
• MRP-II
Answer: C. Automated scheduling of manufacturing resources, including scheduling, capacity, and
forecasting functions.
• ERP
Answer: E. A single software system that includes all manufacturing and related accounting
applications.
• CIMs
Answer: A. A network including production equipment, computer terminals, and accounting
systems.
• JIT
Answer: D. The minimization of inventory levels by the control of production so that products are
produced on a tight schedule in time for their sale.
TEST BANK - CHAPTER 11 - PROBLEMS
158.
159.

Question not available.
Question not available.

160. Using an Internet search engine, search for the terms “CAD” _“industrial robots.” Identify a
company (name and location) that provides manufacturing automation by using robotics.
Describe some of the robotic operations that are featured on the company’s website.
Answer: FANUC Robotics America is the leading supplier of robotic automation in the US. They
provide robotics for assembly, packing, parts transfer, material removal, welding, and painting.
There are too many robotics to explain each, but as an example, FANUC sells a P-10 door opener
that is a vertically articulated robot designed specifically for opening automobile and truck doors
to facilitate robotic interior painting. There are other companies that provide industrial robots,
including KUKA, Epson Robotics, Fischerteknic, Denso, and Motoman. There are many other
companies and a student might find names other than these.
161.

Question not available.


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162. Explain how the over-production of inventories can be seen as unethical in an absorption costing
environment.
Answer: In absorption costing, fixed overhead is allocated to each unit of inventory. Thus,
overproduction that leads to increased levels of finished goods inventory results in more fixed
overhead in the ending inventory valuations. A higher ending inventory valuation leads to lower
cost of goods sold and thereby, higher net income. If the only purpose for this overproduction is
to manipulate net income, it is unethical because it misleads those who use the financial
statements.
163. Price discounts are commonly used in the business world as incentives for customers. How may
this practice (or its misuse) be deemed unethical?
Answer: If it is used as a coercive tactic to lure customers into purchasing early and therefore
increasing profit in a given year, it can be unethical. This is true if the major intent is to inflate
profits. Certainly, there are legitimate reasons to grant discounts, but it becomes unethical when
the intent is to use discounts to inflate sales.
164.

Question not available.


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