Full Test Bank Ch11 Conversion Processes And Controls

ACCOUNTING INFORMATION SYSTEMS/3e

TURNER / WEICKGENANNT/COPELAND

Test Bank: CHAPTER 11: Conversion Processes and Controls

NOTE: All new or adjusted questions are in red. New questions are identified by the letter A as part of the question number; adjusted questions are identified by the letter X as part of the question number.

End of Chapter Questions:

1. Manufacturing has changed in recent years as a result of each of the following factors except:
2. Globalization
3. Technological advances
4. Increased competition
5. Lack of economic prosperity
6. The term conversion processes is often used synonymously with:
7. Operations.
8. Production.
9. Manufacturing.
10. All of the above.
11. Which of the following activities is not part of the planning component of the logistics function?
12. Research and development
13. Capital budgeting
14. Human resource management
15. Scheduling
16. Which of the following activities is an inventory control activity?
17. Engineering
18. Maintenance
19. Routing
20. Quality control
21. Which of the following statements concerning an operations list is ?
22. It is an engineering document that describes the chain of events within a company’s conversion process.
23. It is an engineering document that specifies the descriptions and quantities of component parts within a product.
24. It is a capital budgeting document that describes the chain of events within a company’s conversion process.
25. It is a capital budgeting document that specifies the descriptions and quantities of component parts within a product.
26. Which of the following terms relates to the control of materials being held for future production?
27. Routing
28. Work-in-process
29. Stores
30. Warehousing
31. Which of the following questions is most likely to be found on an internal control questionnaire concerning a company’s conversion processes?
32. Are vendor invoices for materials purchases approved for payment by someone who is independent of the cash disbursements function?
33. Are signed checks for materials purchased mailed promptly without being returned to the department responsible for processing the disbursement?
34. Are approved requisitions required when materials are released from the company’s warehouse into production?
35. Are details of payments for materials balanced to the total posted to the general ledger?
36. When additional procedures are necessary to bring a defective product up to its required specifications, this is referred to as:
37. Rework.
38. Scrap.
39. Work-in-process.
40. Variance reporting.
41. 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.
42. 10 units
43. 224 units
44. 317 units
45. 448 units
46. Which of the following internal controls is typically associated with the maintenance of accurate inventory records?
47. Performing regular comparisons of perpetual records with recent costs of inventory items
48. Using a just-in-time system to keep inventory levels at a minimum
49. Performing a match of the purchase request, receiving report, and purchase order before payment is approved
50. Using physical inventory counts as a basis for adjusting the perpetual records
51. 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?
52. Supplies of relatively low value are expensed when acquired.
53. Supplies are physically counted on a cycle basis, whereby limited counts occur quarterly and each item is counted at least once annually.
54. The stores function is responsible for updating perpetual records whenever inventory items are moved.
55. Perpetual records are maintained for inventory items only if they are significant in value.
56. The goal of a physical inventory reconciliation is to
57. Determine the quantity of inventory sold.
58. Compare the physical count with the perpetual records.
59. Compare the physical count with the periodic records.
60. Determine the quantity of inventory in process.
61. Which of the following is not considered a benefit of using computerized conversion systems?
62. Automatic computation of materials requirements
63. Increased sales and cost of sales
64. Increased efficiency and flexibility
65. Early error detection and increased accuracy
66. 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?
67. The economic order quantity (EOQ)
68. Material resource planning (MRP)
69. First-in, first-out (FIFO)
70. Just-in-time (JIT)
71. For which of the following computerized conversion systems is Wal-Mart well known?
72. CAD/CAM
73. MRP-II
74. CIMs
75. JIT

TEST BANK – CHAPTER 11 – MULTIPLE CHOICE

1. A company’s conversion processes includes all of the following except:
2. Materials.
3. Office supplies.
4. Labor.
5. Overhead.
6. A company must have systems in place to accomplish all of the following except:
7. Capture data.
8. Vocalize data.
9. Record data.
10. Summarize data.
11. The conversion process is initiated when the company recognizes:
12. The receipt of raw materials.
13. The shipment of finished goods to customers.
14. The need to conduct operations.
15. None of the above.
16. According to the textbook, which of the following are the two specific ways in which a company may recognize the need to conduct operations?
17. A sales order is received
18. A sales forecast is made
19. A production schedule is created
20. A physical inventory count is conducted
21. 1 & 2
22. 1 & 3
23. 3 & 4
24. 2 & 3
25. Overhead includes all of the following except:
26. Various other expenses necessary to run the operating facility.
27. The president’s salary.
28. Indirect labor.
29. Indirect materials.
30. The major activities within the conversion process include all but
31. Strategic planning that supports the company’s operational goals.
32. Optimizing the use of the employees, property, and inventories that are needed in operations.
33. Controlling production flows, ensuring product quality.
34. Preparing the related cost accounting and financial accounting records.
35. Which of the following company activities would NOT be considered a productive activity?
36. The manufacture of automobiles.
37. The treatment of patients in a medical facility.
38. Providing consulting services.
39. All of the above, A, B, and C, are considered productive activities.
40. The process of logical, systematic flow of resources throughout the organization is referred to as:
41. Logistics.
42. Planning.
43. Reporting.
44. Sales forecast.
45. Which of the following is NOT a primary component of the logistics function?
46. Planning
47. Resource management
48. Operations
49. Production
50. The component of the logistics function that directs the focus of operations is referred to as:
51. Logistics.
52. Planning.
53. Reporting.
54. Sales forecast.
55. The form that specifies the components of a product, including descriptions and quantities of materials and parts needed is the:
56. Operations list.
57. Bill of materials.
58. Engineering.
59. Capital budgeting.
60. The form that describes the chain of events that constitute a product’s production is referred to as the:
61. Operations list.
62. Bill of materials.
63. Engineering.
64. Capital budgeting.
65. Within the planning component of the logistics function, which of the following processes is responsible for preparing bill of materials and the operations list?
66. Research and development
67. Capital budgeting
68. Engineering
69. Scheduling
70. The process that plans the timing for production activities is referred to as:
71. Operations list.
72. Bill of materials.
73. Scheduling.
74. Capital budgeting.
75. Which of the following processes focuses on product improvement?
76. Engineering
77. Research and development
78. Production
79. Capital budgeting
80. The form that authorizes production activities for a particular sales order or forecasted needs is referred to as the:
81. Production schedule.
82. Production orders.
83. Maintenance and control process.
84. Human resources process.
85. The process that is concerned with maintaining the capital resources used to support production is referred to as:
86. The production schedule.
87. Production orders.
88. Maintenance and control.
89. The human resources process.
90. This schedule outlines the specific timing required for a sales order, including the dates and times designated for the production run.
91. Production schedule
92. Production orders schedule
93. Maintenance and control schedule
94. Human resources schedule
95. 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 the:
96. Production schedule department.
97. Production orders department.
98. Maintenance and control department.
99. Human resources department.
100. The responsibility 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:
101. Production schedule department.
102. Inventory control department.
103. Maintenance and control department.
104. Human resources department.
105. One inventory control function that is important to the conversion process is the determination of _______, or the most efficient quantity of products to purchase.
106. Economic purchase amount
107. Economic order quantities
108. Materials resource quantities
109. Resource purchase quantities
110. The issuance and movement of materials into the various production phases is referred to as:
111. Production scheduling process.
112. Inventory control process.
113. The routing process.
114. The production orders process.
115. The _______ function concerns the control of raw materials inventory held in storage or in holding areas, waiting for processing.
116. Raw materials
117. Inventory warehousing
118. Inventory stores
119. Quality control
120. Which document provides the descriptions and quantities of materials taken into production for a specified sale or other authorized production activity?
121. The routing slip.
122. The shipping notice.
123. The purchase requisition.
124. The sales order.
125. Which of the following involves managing the holding area for finished goods awaiting sale?
126. Purchase orders
127. Shipping notices
128. Purchase requisitions
129. Inventory warehousing
130. The major function within the conversion process is the:
131. Sales order function.
132. Sales forecast function.
133. Logistics function.
134. Reporting function.
135. The component of the logistics function that directs the focus of operations is the:
136. Operations component.
137. Resource management component.
138. Planning component.
139. The sales component.
140. The planning component of the logistics function has all of the following elements except:
141. Maintenance and control.
142. Engineering.
143. Scheduling.
144. Capital budgeting.
145. The resource management component of the logistics function has all of the following elements except:
146. Maintenance and control.
147. Human resources.
148. Inventory control.
149. Capital budgeting.
150. The operations component of the logistics function has which of the following elements?
151. Maintenance and control.
152. Production.
153. Inventory control.
154. Capital budgeting.
155. The responsibility to conduct make/buy decisions is usually given to:
156. Engineering.
157. Capital budgeting.
158. Operations.
159. Research and development.
160. Capital budgeting:
161. Is responsible for the issuance of stocks and bonds to finance operations.
162. Plans the capital resources needed to support operations.
163. Is responsible for the procurement of production materials.
164. Is not a function of a company once established and functioning.
165. Engineering is responsible for:
166. Designing the product while operations is responsible the bill of materials and the operations list.
167. Designing the plant and equipment used in manufacturing.
168. Is responsible for the procurement of production equipment.
169. Designing the product and creating the bill of materials and the operations list.
170. The bill of materials is the:
171. Cost of raw materials purchased from a vendor.
172. Document of instructions utilized to assemble a product.
173. Form that specifies the components of a product.
174. Designing the product and creating the bill of materials and the operations list.
175. The operations list is the:
176. Schedule of production for the day, week, or month as specified by the company.
177. Document of instructions utilized to assemble a product.
178. Form that specifies the components of a product.
179. Designing of the product and creating the bill of materials.
180. Scheduling:
181. Plans the timing for acquisition of fixed assets.
182. Does not take into account machine breakdowns.
183. Takes into consideration all the open sales orders.
184. Does not take inventory needs.
185. Production orders:
186. Outline the specific timing required for sales orders.
187. Authorize production activities for a particular need or order.
188. Are forecasts of needs based on known and anticipated sales.
189. Are issued by the engineering department to correct product deficiency issues.
190. A production schedule:
191. Does not contain requirements due to sales forecasts.
192. Does not contain information from the bill of materials.
193. Contains information from the operations list.
194. Are issued by the maintenance and control department.
195. The department responsible for training production personnel is the:
196. Production department.
197. Human resources department.
198. Engineering department.
199. None of the above.
200. Economic order quantity (EOQ) is a function:
201. Of the purchasing customer or client.
202. Of the sales force to provide the purchasing customer or client with the greatest value.
203. Of the responsibility of engineering through the operations list.
204. Associated with inventory control.
205. Routing is the:
206. Path electronic messages follow in the inventory system.
207. Issuance and movement of materials into the various production phases.
208. Physical movement of materials from the point of sale to the customer.
209. Physical movement of materials from the vendor to the inventory stores facility.
210. Inventory status reports are:
211. Generated only for raw materials.
212. Only generated for finished goods.
213. Prepared at various stages of the production process.
214. Only generated for work in process.
215. Select the statement from the choices below.
216. Inventory stores and warehousing are both concerned with raw materials.
217. Neither inventory stores nor warehousing are concerned with raw materials.
218. Inventory stores are concerned with raw materials and warehousing is concerned with finished goods.
219. Inventory stores are concerned with finished goods and warehousing is concerned with raw materials.
220. All of the following are classifications of inventory EXCEPT:
221. Raw materials
222. Finished goods
223. Sold goods
224. Work-in-process
225. The term “operations” is commonly used to refer to:
226. The main function of the business.
227. Any function of the business which generates revenues.
228. Only those functions of the business accomplished by the operations department.
229. Only those functions which move inventory through the production cycle.
230. Operations may be performed by all of the following except:
231. Continuous processing of homogeneous products.
232. Batch processing.
233. Custom, made-to-order processing.
234. Each of the above is a valid form of operations.
235. The final hub in the logistics function is:
236. Packaging.
237. Quality control.
238. Sales.
239. Shipping to the customer.
240. Rework refers to:
241. Generating a better quote for a customer.
242. Overhaul of a manufacturing machine.
243. Additional procedures to bring a product up to specifications.
244. Parts that are beyond repair at any cost.
245. Which of the following correctly lists activities within the conversion process in chronological order?
246. Prepare bill of materials, initiate production, inspect goods, prepare purchase requisition
247. Prepare purchase requisition, prepare bill of materials, initiate production, inspect goods
248. Inspect goods, prepare bill of materials, initiate production, prepare purchase requisition
249. Prepare bill of materials, prepare purchase requisition, initiate production, inspect goods
250. 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:
251. Quality control.
252. Shipping notice.
253. Purchase requisition.
254. Warehousing.
255. The expected cost based on projections of a product’s required resources which includes direct materials, direct labor and overhead is referred to as:
256. Quality control costs.
257. Sales order cost.
258. Rework costs.
259. Standard costs.
260. 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:
261. A perpetual inventory system.
262. The accounting information system.
263. A periodic inventory system.
264. None of the above.
265. Perpetual inventory systems:
266. Record changes in inventory categories only at the end of each period.
267. Record changes in inventory categories only when sales are made.
268. Record changes in inventory categories whenever material is moved from one category to another.
269. Does not address raw materials.
270. Variances represent the differences between:
271. Actual costs and the standard costs applied.
272. Raw materials ordered and raw materials received.
273. The sales targets and sales accomplishments.
274. Actual quantity on hand and quantity according to the inventory system.
275. Standard costs are the:
276. Responsibility of production accountants.
277. Expected costs based on required resources.
278. Costs normally paid for a component.
279. Prices the customer is expected to pay upon sale.
280. Standard costs take into consideration all of the following except:
281. The cost of materials utilized to maintain production equipment.
282. The cost of labor used to operate the production machinery.
283. The cost of the sales manager’s salary.
284. Factory overhead items that cannot be directly correlated to product production.
285. Perpetual inventory systems:
286. Are only updated at the end of each fiscal period.
287. Are concerned only with finished goods.
288. Are not concerned with raw materials.
289. Involve every level of inventory necessary for production.
290. Periodic inventory systems:
291. Are only updated at the end of each fiscal period.
292. Are concerned only with finished goods.
293. Are not concerned with raw materials.
294. May not reflect current inventory levels.
295. Variances:
296. Represent the differences between actual costs and the standard costs applied.
297. Represent the difference between design specifications and production results.
298. Represent flaws in the production results.
299. Each of the answers, A, B, and C are correct.
300. Variances:
301. Are only investigated if they are unfavorable.
302. Are always investigated.
303. Will always result in the improvement of the logistics function.
304. May not result in any changes in the logistics function.
305. Which of the following is NOT a responsibility given to the individuals making purchases for the company?
306. Purchasing raw materials for production.
307. Specifying the order and sequence of payments to vendors.
308. Selecting vendors.
309. Specifying the quantities to be ordered.
310. Which of the following activities in the conversion process does NOT require express authorization?
311. Initiation of production orders.
312. Issuance of materials into the production process.
313. Transfer of finished goods to the warehouse or shipping areas.
314. Initiation of a sales order.
315. Segregation of duties is accomplished by which of the following?
316. Accounting personnel having restricted access to physical inventory.
317. Warehouse personnel signing all documents related to material movements.
318. Production personnel restricted to one manufacturing station at all times.
319. None of the above.
320. Security of assets and documents include all of the following except:
321. Water sprinklers.
322. Adequate insurance coverage.
323. Restricted movement of office supplies.
324. Security guards.
325. In inventory systems, when the actual quantity and the accounting records quantity are compared it is referred to as:
326. Perpetual inventory.
327. Inventory resolution.
328. The physical inventory reconciliation.
329. Periodic inventory.
330. Cost-benefit can be defined as:
331. Gross profit after sales are made.
332. Cameras and security guards to protect construction materials in a restricted access warehouse.
333. Verifying inventory levels at the end of each working shift.
334. Alarm systems and vaults for fine jewelry inventories.
335. The activity in the conversion process that does NOT require express authorization is the:
336. Initiation of production orders.
337. Issuance of materials into the production process.
338. Transfer of finished goods to the warehouse or shipping areas.
339. Movement of production pieces from one stage of production to the next.
340. Within the logistics function, segregation of duties means:
341. One person should not have both inventory and accounting responsibilities.
342. One person should not have production responsibilities over more than one station.
343. One person should not have quality assurance responsibilities over a work station other than his own.
344. Each person can only have one duty or function in the production function.
345. Physical controls include all but:
346. Fences and alarm systems.
347. Security guards.
348. High tech security tools.
349. Each of the answers, A, B, and C are correct.
350. Physical inventory counts should only include:
351. Finished goods.
352. Finished goods and raw materials.
353. Finished goods and work-in-process.
354. Raw materials, work-in-process, and finished goods.
355. When there is a difference between the inventory records quantity and the physical count of inventory:
356. There is a variance.
357. The difference can be ignored if minor.
358. The difference is resolved through inventory reconciliation.
359. The difference is ignored if the physical quantity exceeds inventory record quantity.
360. Which of the following factors influences the need to safeguard and monitor inventory movement?
361. Inconsistent or high levels of inventory movement.
362. If the inventory is held at various locations.
363. If a company’s inventory items are difficult to differentiate.
364. Each of the answers, A, B, and C are correct.
365. The preparation of production orders and routing slips on prenumbered forms minimizes the related risk of:
366. Omitted transactions
367. Incorrect amounts
368. Duplicate payroll transactions
369. Invalid orders
370. The reconciliation of time sheets with production reports for work-in-process and finished inventories minimizes the related risk of all of the following EXCEPT:
371. Omitted or duplicate payroll transactions
372. Timing issues
373. Incorrect amounts
374. Lost or stolen inventory
375. This software allows engineers to work with advanced graphics at electronic work stations to create 3-D models that depict the production environment.
376. Computer-integrated manufacturing systems (CIMs)
377. Computer aided design (CAD)
378. Material resource planning (MRP)
379. Computer aided manufacturing (CAM)
380. _________________ involves the automated scheduling of production orders and movement of materials in the production process.
381. Computer-integrated manufacturing systems (CIMs)
382. Computer aided design (CAD)
383. Material resource planning (MRP)
384. Computer aided manufacturing (CAM)
385. _____________ integrates all of the conversion processes to allow for minimal disruptions due to reporting requirements or inventory movement issues.
386. Computer-integrated manufacturing systems (CIMs)
387. Computer aided design (CAD)
388. Material resource planning (MRP)
389. Computer aided manufacturing (CAM)
390. IT systems permit or allow all of the following except:
391. Automatic computation of materials requirements based on sales orders.
392. Reduced internal security measures.
393. Automatic updating of inventory status reports
394. Timely transfer of inventories throughout the process.
395. Computerization of the conversion process results in all except:
396. Automatic computation of materials requirements based on purchase orders.
397. Timely transfer of inventories throughout the process.
398. Automatic updating of inventory status reports.
399. Automatic computation of materials requirements based on sales orders.
400. Select the completion to the statement which starts “A computer-based conversion process:”
401. Requires less data input into the system.
402. Automatically prepares financial accounting entries and cost accounting reports.
403. Yields greater benefits in terms of workforce efficiency.
404. Permits more systematic scheduling which allows for greater flexibility.
405. Select the statement.
406. Computer-aided manufacturing (CAM) requires computer-aided design.
407. Computer-aided design is always two dimensional.
408. Computer-aided design may be three dimensional.
409. Computer-aided design requires additional manpower during assembly.
410. Just-in-time (JIT) production systems:
411. Require close communications with the engineering department.
412. Do not require close communications with vendors.
413. Require closely controlled inventory levels.
414. Do not require additional monitoring.
415. The act of misstating financial information in order to improve financial statement results is referred to as:
416. Just in time production systems.
417. Manufacturing resource planning.
418. Earnings management.
419. Absorption costing.
420. Which of the following involves the inclusion of both variable and fixed costs in the determination of unit costs for ending inventories and cost of goods sold?
421. Just in time production systems
422. Manufacturing resource planning
423. Earning management
424. Absorption costing
425. Ethical issues of manufacturing include all except:
426. Reassignment or retraining employees terminated due to automation.
427. Absorption costing.
428. Production of excessive inventory levels.
429. Earnings management.
430. When absorption costing is used:

A. Production inefficiencies are immediately identified.

B. Production to absorb the cost of waste and yield factors not considered in other costing methods.

C. Both variable and fixed costs are included in unit costs.

D. The transfer of values to the income statement through inventory accounts.

1. Earnings management:
2. Is the act of misstating financial information.
3. Is the goal of cost/benefit relationships.
4. Accomplished through the proper management of inventory and sales.
5. Is an ethical goal of management.
6. Manpower displacement through automation:
7. Is considered a benefit through cost/benefit analysis.
8. Should be a concern of management.
9. Is the goal of proper engineering.
10. Seldom results in termination of employees.
11. Functions of corporate governance includes all of the following except:
12. Management oversight
13. Earnings management
14. Financial stewardship
15. Internal control system.
16. When the proper tone of corporate governance is in place:
17. Encouraging ethical conduct is unnecessary.
18. Effectiveness is not improved.
19. Risk of fraud tends to increase.
20. Proper stewardship of assets increases.

TEST BANK – CHAPTER 11– TRUE /

1. Resources required in the conversion process include materials, labor, overhead, and fixed assets.
2. Even if a firm is a service or sales firm it may conduct some sort of manufacturing operation.
3. The major function within the conversion process is the logistics function.
4. The three primary components of the logistics function are 1) planning, 2) production, and 3) sales.
5. The research and development effort is part of the planning process rather than the operations process.
6. A bill of materials lists both physical items and skill requirements needed to construct an item of inventory.
7. Maintenance and control is concerned with maintaining the capital resources used to support production, including production facilities and other fixed assets.
8. Routing is the issuance and movement of materials through the sales process.
9. Inventory warehousing involves managing the holding area for finished goods awaiting sale.
10. The final hub in the logistics function is sales.
11. Standard costs are expected costs based on projections of a product’s required resources.
12. Standard costs include direct materials, direct labor, and overhead.
13. Perpetual inventory systems involve updating the inventory and cost of sales accounts only at the end of the period.
14. 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.
15. Complete, up-to-date, and accurate documentation on production orders is needed to support the conversion process.
16. Physical controls should be in place in the company’s storerooms, warehouses, and production facilities in order to safeguard the inventories held therein.
17. When perpetual inventory concepts are utilized, a physical inventory count to determine the quantity of inventory on hand is not required.
18. Computer-aided manufacturing (CAM) involves the complete automation of the production process, including the full replacement of human resources with computers.
19. MRP stands for Management Resource Projections.
20. Just-in-time (JIT) production systems are concerned with minimizing or eliminating inventory levels of all inventory items.
21. Earnings management is the act of misstating financial information in order to improve financial statement results.
22. 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.
23. Based on the cost/benefit concept, it is not necessary for management to consider the moral implications of replacing human resources with electronic resources.
24. The corporate governance structure includes internal controls in addition to systems and processes.
25. 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.
26. SO4 Controls in the Conversion Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the Conversion Process.

1. SO 5 Technological Developments and the Conversion Process

Recent technological developments have resulted in significant changes in the way that many companies conduct their conversion processes. Describe the benefits and efficiencies that companies may experience when utilizing computerized systems in the conversion process.

1. SO 5 Conversion Process Terminology

Describe and explain the following terms with respect to the conversion process.

1. Computer-aided design (CAD)
2. Computer-aided manufacturing (CAM)
3. Materials resource planning (MRP)
4. Manufacturing resource planning (MRP-II)
5. Computer-integrated manufacturing systems (CIMs)
6. Just-in-time (JIT) production
7. Radio-frequency identification (RFID)