Solutions for Chapter 11

Audit of Acquisition and Payment Cycle and Inventory

Review Questions:

11-1. Supply chain management involves the management and control of materials in the logistics process from the acquisition of raw materials to the delivery of finished products to the end user (customer). Supply-chain management involves contracts between buyers and suppliers that specify contract, delivery, and payment terms. In some cases, such as Wal-Mart, suppliers retain title to the goods until they are sold to the buyer’s customers. Wal-Mart’s suppliers have access to Wal-Mart’s inventory records and automatically restock inventory according to that contract. Wal-Mart pays their suppliers when the products are sold to its customers. General Motors has contracts with its suppliers that call for providing tires and other parts based on production schedules and paying suppliers based on the actual production of cars.

11-2. The major controls that a company such as General Motors will consider in such a partnering relationship include:

• A contract specifying the requirements of each party to the contract. For example, the contract should specify the following major requirements of the supplier:

o Penalties for failure to deliver products on time. o Quality control requirements, including inspection and testing to be done either by the supplier or the purchaser. Most contracts require intensive inspection by the supplier. o Responsibility for consumer relation costs incurred because of defective parts. o Payment terms. o Prices. o Verification of receipt procedures. o Delivery responsibility, for example a just-in-time delivery system must specify the order and the configuration of the delivery. o Responsibility for costs incurred if