The effect of just-in-time production approaches:
Answer(s): B
Just-in-time JIT) production approaches can reduce the cost of production. It lowers or eliminates inventory costs and requires production improvements to eliminate product defects.
A manufacturer uses a materials requirements planning 1RP) system to track inventory, orders, and raw material requirements. A preliminary audit assessment indicates that the organization's inventory is understated. Using audit software, what conditions should the auditor search for in the MRP database to support this hypothesis?I). Item cost set at zero.II). Negative quantities on hand.III). Order quantity exceeding requirements.IV). Inventory lead times exceeding delivery schedule.
Answer(s): A
If there is no monetary amount in the database for existing inventory, inventory will be understated. Moreover, inadequate edit checks or uncontrolled borrow/paybacks could cause negative quantities to be reported. This condition would cause inventory to be understated. If the amount ordered exceeds requirements, the result is an increase in inventory. However, by itself, this condition would not cause inventory to be understated or overstated. Also, if lead times are longer than delivery times, the effect is an increase in inventory but not necessarily a misstatement.
The internal auditor found that the purchasing department has a policy of setting all purchasing lead times to the highest number of days experienced within each product subassembly}, even though some subassemblies required 3 or more months to complete. To address the objective of reducing inventory holding costs related to this policy, the internal auditor should focus on:
The effect of this policy is to increase inventory holding carrying) costs. Using the longest lead time avoids stock out costs but ensures that many items will be delivered long before they are needed.
Just-in-time JIT) inventory systems have been adopted by large manufacturers to minimize the carrying costs of inventories. Identify the primary vulnerability of JIT systems.
Answer(s): C
JIT minimizes inventory by relying on coordination with suppliers to provide deliveries when they are needed for production. Consequently, work stoppages are more likely due to Stock outs, because the inventory buffer is reduced or eliminated.
A company manufactures banana hooks for retail sale. The bill of materials for this item and the parts inventory for each material required are as follows:
The company needs 1,800 banana hooks 2,000 -- 200) and therefore 1,800 swag hooks 1 1,800) and 3,600 wood screws 2 1,800). Given that 300 swag hooks and 400 wood screws are on hand, the company must obtain 1,500 swag hooks 1,800 -- 300) and 3,200 wood screws 3,600 400).
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