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Chapter 12: The Purchasing Process TRUE/FALSE 1.

As used in the purchasing process chapter, the term goods and services refers to raw materials, merchandise, supplies, fixed assets, or intangible assets. ANS: F 2. The purchasing manager usually performs major buying activities as well as performing the administrative duties of running a department. ANS: T 3. The purchasing supervisor is responsible for receiving incoming goods, signing the bill of lading presented by the carrier, reporting the receipt of goods, and making prompt transfer of goods to the appropriate warehouse or department. ANS: F 4. In many organizations professional buyers do the actual buying. ANS: T 5. Goal congruence exists when each individual managers' goals are achieved. ANS: F 6. The connections between an organization, including the flow of information, materials, and services from suppliers of merchandise and raw materials through to the organizations customers, are its supply chain. ANS: T 7. When the data on the inventory record indicate a need to replenish the stock, the inventory system prepares a purchase order. ANS: F 8. The purchase requisition is sent from the inventory control department to the purchasing department. ANS: T 9. Supply chain management (SCM) is the combination of processes and procedures used to ensure the delivery of goods and services to customers at the lowest cost while providing the highest value to the customers.

ANS: T 10. With continuous replenishment (CRP) a vendor obtains a buyers current sales, demand, and inventory data in real time and replenishes the buyers inventory. ANS: T 11. Notifications that a PO has been prepared and sent to the vendor are sent to the receiving department, the accounts receivable process, and the department or process that requested the purchase. ANS: F 12. Collaborative processes across the supply chain using a set of processes and technology models is called Collaborative Planning, Forecasting, and Replenishment (CPFR). ANS: T 13. A retailer could misread a demand signal doubling its normal order, and the wholesaler could respond and also double its order resulting in four times the retail order. This is an example of the bullwhip effect. ANS: T 14. According to the context diagram for the purchasing process, when a purchase order is sent to the purchaser, the vendor responds by sending the goods along with a packing slip. ANS: F 15. Reorder point (ROP) analysis reorders inventory when the item reaches a certain inventory level that was determined in advance based on the item's purchase rate. ANS: F 16. EOQ is a technique of analyzing all incremental costs associated with acquiring and carrying particular items of inventory. ANS: T 17. ABC analysis is a technique for ranking inventory items according to their relative importance. ANS: T 18. In selecting a vendor, a buyer may need to obtain competitive bids by means of a document called a purchase order. ANS: F

19. A receiving report is an external request for the purchase of goods or services from a vendor. ANS: F 20. After the vendor has been selected, the buyer prepares a purchase order. ANS: T 21. Inventory personnel use the vendor master data to select an appropriate vendor. ANS: F 22. It is not uncommon for the copy of the PO available for the receiving department to be a carbon copy, meaning that certain data is blanked out. ANS: F 23. The business document that accompanies the purchased inventory from the vendor, identifies the shipment and triggers the inventory receiving process is the vendor packing slip. ANS: T 24. The document used to record merchandise receipts is called a purchasing report. ANS: F 25. Whereas a receiving report normally indicates that goods have been received, some organizations use an acceptance report to acknowledge formally the satisfactory completion of a service contract. ANS: T 26. The inventory master data contains a record of each vendor that is approved for use by the organization. ANS: F 27. The purchase order master data is a compilation of open POs and includes the status of each item on order. ANS: T 28. The warehouse master data contains a record of each inventory item which is stocked in the warehouse and/or regularly ordered from a vendor. ANS: F

29. The purchase receipts data is an event data store with each record reflecting a receipt of goods and services. ANS: T 30. A paperless system would eliminate documents and forms as the medium for conducting business transactions. ANS: T 31. The warehouse number is the primary key for the relational table for inventory. ANS: F 32. The item number is the primary key for relational table for vendors. ANS: F 33. RFID tags are computer chips with an antenna that contains information about the object to which it is attached. ANS: T 34. An employee has a conflict of interest when he (she) has a financial interest (direct of indirect) in a company with which the employer does business. ANS: T 35. Digital signatures allows the vendor to determine that the sender of the message has the authority to send it and thus prevents an unauthorized purchase. ANS: T MULTIPLE CHOICE 1. The purchasing process is part of the ____ process for a merchandising firm. a. order-to-cash b. purchase-to-pay c. conversion d. general ledger/financial reporting ANS: B

2. The typical purchasing process would capture and record data related to the day-to-day operations of all of the following except: a. shipping b. buyers c. receiving d. purchasing ANS: A 3. As used in the text, the term services specifically refers to: a. items having a physical existence and value b. work performed by employees c. work performed by outside vendors d. products normally held for resale ANS: C 4. Which of the following is least likely to report directly to the vice president of logistics? a. controller b. receiving department c. purchasing department d. warehouse ANS: A 5. Which of the following managers is most likely to report to the controller? a. accounts payable department manager b. cashier c. purchasing department manager d. receiving department manager ANS: A 6. The typical information flows in a purchasing process might include all of the following except: a. a purchase requisition is sent from inventory control to the purchasing department b. the purchase order is sent to the vendor c. goods or services are received from the vendor d. a copy of a receiving report is sent to the cashier

ANS: D 7. The purchasing manager is evaluated by his/her supervisors based on purchasing inventory at the lowest price. Consequently, the purchasing manager knowingly orders materials only based on price. This has resulted in the purchase of inferior quality materials. This improved the purchasing managers performance evaluation, but had a negative impact on production due to an increase in scrapped materials. This situation is an example of a failure of: a. goal congruence b. management perquisites c. management by exception d. control theory ANS: A 8. Assume that one of the process bubbles in the Purchasing Process - Level 0 Diagram is called "order goods and services." The data flow between order goods and services and the vendor is called a a. purchase order b. receiving report c. stock notice d. inventory notice ANS: A 9. Which of the following process bubbles would you not expect to see in the Purchasing Process Level 0 Diagram? a. make payment b. order goods and services c. receive goods and services d. determine requirements ANS: A 10. Which of the following data stores would you least expect to see in the Purchasing Process Level 0 Diagram? a. inventory master data b. vendor master data c. purchase order master data d. cash receipts data ANS: D

11. In a purchasing process, once requirements are determined and a vendor selected, the next step is: a. the purchase requisition b. the purchase order c. receive goods and services d. a vendor acknowledgment ANS: B 12. The purchasing process--receive goods and services--normally would be triggered by the data flow: a. purchase order b. vendor acknowledgment c. vendor packing slip d. purchase requisition ANS: C 13. At the time that a purchasing process performs the process of ordering goods and services, the process is likely to interact with all of the following data stores except the: a. receiving report data b. vendor master data c. inventory master data d. purchase order master data ANS: A 14. At the time that a purchasing process places an order for goods or services, which of the following is typically updated? a. accounts payable master data b. receiving report data c. purchase order data d. general ledger data ANS: C 15. In the Purchasing Process - Level 0 Diagram, a data flow called vendor packing slip would most likely be sent by the vendor to which of the following processes? a. order goods and services b. receive goods and services

c. determine requirements d. none of the above ANS: B 16. In the Purchasing Process - Level 0 Diagram, a data flow called "inventory purchase requisition" most likely would be sent by the inventory management process to which of the following processes? a. order goods and services b. receive goods and services c. determine requirements d. none of the above ANS: C 17. Outputs of a purchasing process normally might include all of the following except: a. purchase order b. a purchase order inventory notification sent to the inventory system c. receiving report d. vendor invoice ANS: D 18. Who usually authorizes a purchase requisition? a. the supervisor of the requisitioning department b. the purchasing manager c. a purchasing agent d. a customer ANS: A 19. Which of the following techniques has the reorder point based on each inventory items sales rate? a. cyclical reordering b. reorder point (ROP) analysis c. ABC analysis d. EOQ models ANS: B 20. Which of the following is a technique for ranking items in a group based on the output of the items?

a. cyclical reordering b. reorder point analysis c. EOQ models d. ABC analysis ANS: D 21. Which of the following techniques analyzes all incremental costs associated with acquiring and carrying particular items of inventory? a. cyclical reordering b. reorder point analysis c. EOQ models d. ABC analysis ANS: C 22. Inventory carrying costs include all of the following except: a. clerical cost of ordering goods b. opportunity cost of investment funds c. insurance costs d. obsolescence and deterioration ANS: A 23. Which of the following is not a cost element as part of the inventory carrying costs? a. insurance costs b. property taxes c. purchase order preparation costs d. storage costs ANS: C 24. When large or expensive items are purchased, most organizations make use of a procedure to obtain competitive bids from multiple vendors. The document used to obtain competitive bids is called a(n): a. purchase requisition b. purchase order c. request for quotation d. authorization to bid ANS: C

25. The document one business sends to another business that identifies the goods or services to be purchased is a: a. request for proposal b. purchase requisition c. purchase order d. disbursement voucher ANS: C 26. In a purchasing process, receiving goods, but not a vendor invoice, from a supplier typically results in an update to all of the following data stores except the: a. inventory master data b. vendor master data c. accounts payable master data d. purchase order master data ANS: C 27. Purchase orders are sent to: a. customers b. vendors c. carriers d. managers ANS: B 28. Which of the following most likely would be "blinded" on a copy of the purchase order sent to the receiving department? a. inventory descriptions b. vendor identification c. quantities d. freight terms ANS: C 29. A control that can ensure that receiving clerks are not influenced by quantity information while actually counting incoming goods is to: a. send a "blind" copy of the purchase order to receiving

b. establish a "tickler" file for completed purchase orders c. send copies of a receiving report to accounts payable d. establishing "blanket orders" in purchasing ANS: A 30. A "blind" copy of the purchase order should be sent to receiving so that: a. receiving can anticipate the receipt of the goods from the vendor b. receiving clerks will know the value of what is on order c. partial shipments can be monitored d. receiving clerks will be forced to actually count the goods that are received ANS: D 31. The vendor packing slip triggers which process? a. receive goods and services b. order goods and services c. determine requirements d. none of the above ANS: A 32. In the process of preparing a receiving report, the receiving department should perform all of the following tasks except: a. inspect and approve quality b. count the quantity received c. compare the completed receiving report to the information stored in the purchase order master data d. compare the vendor's packing slip to a copy of the purchase requisition ANS: D 33. In a purchasing process, the receiving report may be accessed by all of the following except: a. accounts payable department b. cashier c. warehouse d. requesting department ANS: B

34. A receiving report is to goods what a(n) ____ is to services. a. purchase requisition b. purchase order c. acceptance report d. vendor packing slip ANS: C 35. Data about vendor compliance with the terms of the purchase order normally would be included in the: a. accounts payable master b. data vendor master data c. inventory master data d. warehouse master data ANS: B 36. The ____ is a compilation of open purchase orders and includes the status of each item on order. a. accounts payable master data b. vendor master data c. vouchers payable master data d. purchase order master data ANS: D 37. In an entity-relationship (E-R) diagram for the purchasing process, you would expect that the word generate would appear in the diamond showing the relationship between: a. VENDOR and PURCHASE_ORDERS b. VENDOR and EMPLOYEES c. VENDOR and PURCHASE_REQUISITIONS d. PURCHASE_REQUISITIONS and PURCHASE_ORDERS ANS: D 38. In an entity-relationship (E-R) diagram for the purchasing process, you would expect that the words yield would appear in the diamond showing the relationship between: a. PURCHASE_REQUISITIONS and INVENTORY_RECEIPT b. PURCHASE_ORDERS and PURCHASE_RECEIPTS c. VENDOR and PURCHASE_ORDERS

d. VENDOR and PURCHASE_REQUISITIONS ANS: B 39. In a database containing (among others) five relations--VENDORS, PURCHASE_REQUISITIONS, PURCHASE_ORDERS, PURCHASE_RECEIPTS, INVENTORY, and EMPLOYEES--you would expect that the attribute Vend_No (vendor number) would be the primary key in the ____ relation. a. VENDORS b. PURCHASE_ORDERS c. PURCHASE_RECEIPTS d. EMPLOYEES ANS: A 40. Issues related to the purchasing function, such as kickbacks, bribes, conflicts of interest, and the like are often addressed by ____. a. job descriptions b. corporate codes of conduct c. computer security modules d. vendor master files ANS: B 41. Which of the following items is not a control plan of the purchasing process? a. minimize inventory carrying costs b. written approvals c. compare vendors for prices, terms, quality, product availability d. requisition confirmation to originating department ANS: A 42. The resources for which the purchasing process wants to ensure security for which of the following: a. purchase order master data b. inventory c. both a and b d. neither a or b ANS: C

43. The control plan compare vendors for favorable prices, terms, quality and product availability is directed primarily at which of the following control goals? a. ensure effectiveness of operations b. input validity c. input accuracy d. input completeness ANS: A 44. Supply chain management a. helps to ensure delivery of goods and services to customers of the highest value but increases costs. b. helps to ensure delivery of goods and services to customers of the highest value at the lowest costs. c. helps to ensure delivery of goods and services to customers at the lowest cost but can comprise quality. d. increases inventory across the supply chain. ANS: B 45. Which of the following is not included in the SCOR model as one of the five basic components of supply chain management? a. Plan b. Source c. Deliver d. Receive ANS: D 46. Which of the following is not a potential benefit of supply chain management? a. lower costs to the customer b. reduced inventories c. reduced customer orders d. reduced product defects ANS: C 47. Which of the following is a potential problem with supply chain management initiatives? a. confused lines of responsibility b. inaccurate data within the supply chain c. over-reliance on demand forecasting

d. all of the above ANS: D 48. Which type of supply chain collaboration techniques includes the vendor obtaining the buyers current sales, demand, and inventory data in real time and replenishing the buyers inventory? a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI) b. Co-Managed Inventory c. Collaborative Forecasting and Replenishment (CFAR) d. Collaborative Planning, Forecasting and Replenishment (CPFR) ANS: A 49. Which type of supply chain collaboration includes the vendor replenishing standard merchandise while the buyer manages the replenishment of promotion merchandise? a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI) b. Co-Managed Inventory c. Collaborative Forecasting and Replenishment (CFAR) d. Collaborative Planning, Forecasting and Replenishment (CPFR) ANS: B 50. Which type of supply chain collaboration includes the retailer and the manufacturer forecasting demand and scheduling production jointly? a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI) b. Co-Managed Inventory c. Collaborative Forecasting and Replenishment (CFAR) d. Collaborative Planning, Forecasting and Replenishment (CPFR) ANS: C 51. Which type of supply chain collaboration includes collaborative processes across the supply chain using a set of processes and technology models? a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI) b. Co-Managed Inventory c. Collaborative Forecasting and Replenishment (CFAR) d. Collaborative Planning, Forecasting and Replenishment (CPFR) ANS: D

COMPLETION 1. As used in the purchasing process chapter, the term ____________________ refers to raw materials, merchandise, supplies, fixed assets, or intangible assets. ANS: goods 2. The ____________________ manager usually performs major buying activities as well as performing the administrative duties of running a department. ANS: purchasing 3. The ____________________ supervisor is responsible for receiving incoming goods, signing the bill of lading presented by the carrier, reporting the receipt of goods, and making prompt transfer of goods to the appropriate warehouse or department. ANS: receiving 4. In many organizations _____________________________ do the actual buying ANS: professional buyers 5. Goal ____________________ exists when individual managers' goals are in agreement with overall organizational objectives. ANS: congruence 6. The connections between an organization, including the flow of information, materials, and services from suppliers of raw materials through the organizations customers, are its ______________________________. ANS: supply chain 7. When data on the inventory record indicate a need to replenish the stock, the inventory system prepares a(n) ______________________________. ANS: purchase requisition 8. The purchase requisition is sent from the inventory control department to the ____________________ department. ANS: purchasing 9. Notification that a PO has been prepared and sent to the vendor is sent to the ___________________ , receiving and ______________________________.

ANS: original requestor, accounts payable 10. _________________________ management is the combination of processes and procedures used to ensure the delivery of goods and services to customers at the lowest cost while providing the highest value to the customer. ANS: Supply chain 11. With ______________________________ a vendor obtains a buyers current sales, demand, and inventory data in real time and replenishes the buyers inventory. ANS: continuous replenishment (CRP) [Also called vendor managed inventory (VMI) or supplier managed inventory (SMI)] 12. ____________________________________________________________ features collaborative processes across the supply chain using a set of processes and technology models. ANS: Collaborative Planning Forecasting and Replenishment (CPFR) 13. A retailer could misread a demand signal doubling its normal order and the wholesaler could respond and also double its order resulting in four times the retail order. This is an example of the ______________________________. ANS: bullwhip effect 14. According to the context diagram for the purchasing process, when a purchase order is sent to the vendor, the vendor responds by sending the goods along with a ______________________________. ANS: vendor packing slip 15. ___________________________________ reorders inventory when the item reaches a certain inventory level that was determined in advance based on the item's sales rate. ANS: Reorder point (RPO) analysis 16. ________________________________________ is a technique of analyzing all incremental costs associated with acquiring and carrying particular items of inventory. ANS: Economic order quantity (EOQ) 17. ______________________________ is a technique for ranking inventory items according to their relative importance. ANS: ABC analysis

18. In selecting a vendor, a buyer may need to obtain competitive bids by means of a document called a(n) ______________________________. ANS: request for quotation (RFQ) 19. A(n) ______________________________ is an external request for the purchase of goods or services from a vendor. ANS: purchase order 20. After the ____________________ has been selected, the ____________________ prepares a purchase order. ANS: vendor, buyer 21. The electronic purchase order is the basis for a formal contract between the buyer and the seller; therefore, it should bear a(n) ______________________________. ANS: digital signature 22. Purchasing personnel use the ______________________________ data to identify potential suppliers that have been approved for use by the organization. ANS: vendor master 23. A(n) ____________________ copy of a document is one in which selected data are blanked out so that persons receiving that copy will not have access to the data. ANS: blind 24. The business document that accompanies the purchased inventory from the vendor and identifies the shipment and triggers the inventory receiving process is the _____________________________________________. ANS: vendor packing slip 25. The document used to record merchandise receipts is called a(n) ______________________________. ANS: receiving report 26. Whereas a receiving report normally indicates that goods have been received, some organizations use a(n) ______________________________ to acknowledge formally the satisfactory completion of a service contract. ANS: acceptance report

27. The ________________________________________ is a compilation of open purchase orders that includes the status of each item on order. ANS: purchase order master data 28. The __________________________________________________are an event data store with each record reflecting a receipt of goods and services. ANS: purchase receipts data 29. A(n) ____________________ system would eliminate documents and forms as the medium for conducting business transactions. ANS: paperless 30. The _________________________ is the primary key for the relational table for inventory. ANS: item number (Item_No) 31. The _________________________ is the primary key for relational table for vendors. ANS: vendor number (Vend_No) 32. ________________________________ tags identify an instance of an item, not just an item type (e.g., this box of Huggies,not any box of Huggies). ANS: Radio frequency identification (RFID) 33. An employee has a ___________________________________ when he (she) has a financial interest (direct or indirect) in a company with which the employer does business. ANS: conflict of interest 34. ______________________________ allow the vendor to determine that the sender of the message has the authority to send it and thus prevents an unauthorized purchase. ANS: Digital signatures 35. The ____________________ process is an interacting structure of people, equipment, methods, and controls that is designed to accomplish the functions of requirements determination, purchase order processing, and goods receipt. ANS: purchasing 36. Purchase requisitions are compiled in a ______________________________ data store. ANS: purchase requisition 37. ______________________________ are particular Web sites or portals that may be used as sources of supply in the procurement process.

ANS: B2B marketplaces 38. Management should exercise the control plan ________________________________________ to ensure that a purchase is within an applicable budget and that the purchase is desirable. ANS: approve purchase requisitions 39. In preparing a PO, buyers should ___________________________________ to ensure that a purchase is being made from a suitable vendor. ANS: use authorized vendor data 40. The control plan __________________________________________________ assumes that there is a segregation of duties between the personnel who create vendor records and those that create and approve POs, record accounts payable, and approve payments. ANS: independent vendor master data maintenance 41. Before executing a purchase, buyers should compare vendors for _______________________, __________________ and ___________________________________to determine that they have made an optimal choice for the purchase. ANS: favorable prices terms, quality, product availability 42. Management should exercise the control plan of ___________________________________ to ensure that an appropriate supplier has been selected and that the correct goods and services, for the correct amounts, are being purchased. ANS: approve purchase orders 43. To prevent duplicate PO requests and to allow the requesting department to ensure that a purchase order has been created, the purchasing department should ____________________________________________________________. ANS: confirm purchase orders to requesting departments 44. __________________________________________________ means that before a receipt can be accepted and recorded, the receipt data should be compared with the PO master data to determine that an approved PO, prepared by someone other than receiving personnel, is on file. ANS: Independent authorization to record receipt 45. The receiving department or quality control function should _________________________________ to ensure that the correct goods are received in acceptable condition. ANS: inspect goods

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