1. Which of the following is the most important element of internal control relating to the raw materials inventory of a manufacturing company?
a. The physical inventory count should be made by personnel independent of the inventory custodians.
b. Materials from vendors should be received directly by the production department that will be using the materials.
c. Shortages in shipments from vendors should be reported immediately to the production department that will be using the materials.
d. Issues from inventory should be supported by sales invoices.

2. A well- functioning system of internal control over the inventory/ production functions would provide that finished goods are to be accepted for stock only after presentation of a completed production order and a( n)
a. Shipping order.
b. Materials requisition.
c. Bill of lading.
d. Inspection report.

3. If preparation of a periodic scrap report is essential in order to maintain adequate control over the manufacturing process, the data for this report should be accumulated in the
a. Accounting department.
b. Production department.
c. Warehousing department.
d. Budget department.

4. Which of the following control procedures would most likely be used to maintain accurate perpetual inventory records?
a. Independent storeroom count of goods received
b. Periodic independent reconciliation of control and subsidiary records
c. Periodic independent comparison of records with goods on hand
d. Independent matching of purchase orders, receiving reports, and vendors’ invoices

5. Which of the following procedures is most likely to prevent the improper disposition of equipment?
a. A separation of duties between those authorized to dispose of equipment and those authorized to approve removal work orders
b. The use of serial numbers to identify equipment that could be sold
c. Periodic comparison of removal work orders to authorizing documentation
d. A periodic analysis of the scrap sales and the repairs and maintenance accounts

6. Which of the following controls would be most effective in ensuring that the proper custody of assets in the investing cycle is maintained?
a. Direct access to securities in the safety deposit box is limited to only one corporate officer.
b. Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger.
c. The purchase and sale of investments are executed on the specific authorization of the board of directors.
d. The recorded balances in the investment subsidiary ledger are compared periodically with the contents of the safety deposit box by independent personnel.

7. The objectives of the internal control structure for a production cycle are to provide assurance that transactions are executed and recorded properly and that
a. Independent internal verification of activity reports is established.
b. Transfers to finished goods are documented by a completed production report and a quality control report.
c. Production orders are pre-numbered and signed by a supervisor.
d. Custody of WIP and of finished goods is properly maintained.

8. Independent internal verification of inventory occurs when employees who
a. Issue raw materials obtain materials requisitions for each issue and prepare daily totals of materials issued.
b. Compare records of goods on hand with physical quantities do not maintain the records or have custody of the inventory.
c. Obtain receipts for the transfer of completed work to finished goods prepare a completed production report.
d. Are independent of issuing production orders update records from completed job cost sheets and production cost reports on a timely basis.