J. C. Penney department stores are the number one retailer of men's shirts in North America. In order to reduce inventory and order time, and to better anticipate market trends, J. C. Penney has established a sole sourcing contract with TAL industries of Hong Kong. J. C. Penney has signed a long-term purchase contract with TAL regarding the quality of shirts, prices, shipping requirements, and inventory levels.
TAL downloads information on sales from all J. C. Penney stores each evening.TAL has a responsibility to predict market demand and to increase the sales of its shirts in each J. C. Penney store. They have the advantage of analyzing diverse trends across the United States. They have been known to rush-order the manufacturing of new shirts in specific styles and air-freight them directly to some stores-not at J. C. Penney's request, but because of their own market analysis.
In a sense, J. C. Penney does not know the exact quantities of shirts that will be shipped to each store. Nor does J. C. Penney have a formal receiving function at each store that logs in the items received.
However, they do have a receiving function if the shirts go to one of their 12 distribution centers. But, if TAL labels and prices all the goods and ships directly to the stores, it saves time and effort for J. C. Penney.
TAL bills J. C. Penney electronically every week. J. C. Penney transfers the authorized amount electronically to TAL's bank account on the 16th and 30th of each month.

Required
a. What information does J. C. Penney need to know about TAL manufacturing before entering into a contract with them such as the one described?
b. Identify the controls that J. C. Penney should have in place to ensure that only goods that were received were billed, and that the billing is at the authorized prices.
c. What kind of reconciling procedure should J. C. Penney utilize to determine whether or not they paid TAL for more shirts than they actually received?
d. From TAL's viewpoint, what controls should J. C. Penney have on hand at the store level to ensure that shirts are not taken off the receiving dock before they reach the shopping floor, and that there is no shoplifting or other theft of the product? Why are these controls important to TAL?