Question

2. Following is a list of activities in the acquisition and payment cycle for inventory and cost of goods sold. List at least three controls for each activity below and explain how to ensure good amount of control is proceeded.

a. Requisition for goods and services

b. Purchase of goods and services

c. Receipt of, and accounting for, goods and services

d. Approval of items for payment

e. Cash disbursements

3. Following is a list of substantive tests could be performed in auditing inventory cycle. Explain the understanding of the test, how it occurred, what acceptable level should be achieved, and what assertions could be addressed through the test.

a. Physical inventory test

i. Complete in year end

ii. Occurred before year end

b. Trace counts

c. Year-end cut-off test

d. Test inventory cost

e. Test standard costing system

f. Test perpetual inventory system

Answer 1

The production control is the function of management which plans, directs and controls the material supply and processing activities of an enterprise so that specified products are produced by specified methods to meet an approved sales programme. It ensures that activities are carried out in such a way that the available labour and capital are used in the best possible way.

Following factors are involved in the practice of production control:

1. CONTROL ACTIVITIES

This is done by releasing manufacturing orders through dispatching. Thus, plans are set in motion at the assigned time.

2. CONTROL OF MATERIAL MOVEMENT

The time at which material is received from the supplier, and issued to the plant is observed and a close watch is kept on its movement from one plant to another to ensure that this movement is in accordance with the production cost.

3. AVAILABILITY OF TOOLS IS CONTROLLED

Steps are to be taken to ensure that tools specified in the production plan are available as and when required.

4. QUANTITY PRODUCED IS CONTROLLED

Work-in-process at pre-determined stages of production is observed to determine that right quantity of specified quality work is processed.

5. CONTROL OF REPLACEMENT

Quantity of raw material and work-in-process which fails to pass each stage of inspection is observed. Provision is made to issue replacement orders for each material for work.

6. LABOUR EFFICIENCY AND CONTROL

Time taken on each unit of work-in-process is observed and recorded. Comparison of time taken is made with the time allowed in scheduling