Tutorial 3b Inventory

Question 1

Open and closed warehouse

Answer 1

Inventories are usually stored in spaces surrounded by a fence or in a warehouse

This can be described as a physically closed warehouse

Administratively closed - If the inventory is managed by a warehouse master who records the receipts and transfers out into an inventory file

Open warehouse - eg production companies, don’t used closed warehouses due to logistical reasons or and because the resources used aren’t valuable

Question 2

Level of detail used for inventory records

Answer 2

Inventory account per unit

Inventory account per item of product

Inventory account per lot

Inventory account in totals

Question 3

Typical info needs

Answer 3

Amount of inventories

Differences between the inventory actually present and recorded (inventory differences)

Value of inventories

Age of the inventories

Spoiled inventories

Question 4

Steps in the inventory process

Answer 4

Receipt of purchase order

Inventory management

Handing over goods

Taking stock

Question 5

Receipt of purchase order

Answer 5

Checking quality received is same as ordered

Recording receipt in inventory file

Failure to timely or correctly perform the receipt procedure, will cause a deviation between the actual physical inventory and the recordings in the inventory file -in this situation the info about the inventory is unreliable

Question 6

Inventory management

Answer 6

Manager of inventory (usually warehouse manager) must ensure that the inventory remains in good condition and does not leave the organisation unauthorised.

Exotically id goods are precious or subject to decay or rot

Question 7

Handing over goods

Answer 7

It is important that no goods or raw materials leave the warehouse without recording the reason (eg sales order ) in the inventory file

The warehouse manager has to record the relevant data in the inventory file.

The warehouse manager records the following data in the inventory file : sales order number, product code, amount, date etc

Question 8

Taking stock

Answer 8

In the presence of an employee of the ((accounting department)) to check the warehouse manager

Partially and regularly if the inventory file is sufficient

Otherwise the whole stock should be counted at a practical moment

Inventory count report minus recorded inventory = inventory difference

Question 9

Risks of inventory process

Answer 9

Receipt :

• Authorisation to receive goods
• correct recording
• complete recording of goods received

Save :

• Unauthorised access to warehouse
• correct assessment of theft
• correct assessment of deterioration of goods

Handing over:

• Authorisation to deliver goods
• correct recording of release and thus consumption of goods

Question 10

Preventative control

Answer 10

Budgets and standards :

• Level of inv needed for normal operations should be determined
• standards for decay and other forms of inventory loss

Segregation of duties :

• Warehouse manager has the custody function
• should be checked by an employee from the accounting department

Procedures and guidelines

Safeguarding :

• Degree of protection in line with the value of the inv and likelihood of theft
• The risk of theft is influenced by the quality of the control environment : lock and key , camera and anti theft procedures

Question 11

Detective control activities

Answer 11

Analytical reviews :

• Actual inventory v normal inventory
• actual inventory differences compared to theft expected
• Actual turnover compared to the anticipated inv turnover

Reconciliations :
Should be based on flow of goods movement

Physical observation of the inventory by stock counts