The following questions concern internal controls in the inventory and warehousing cycle. Choose the best response.

a. In a company whose materials and supplies include a great number of items, a fundamental deficiency in con¬ trol requirements would be indicated if

(1) the cycle basis for physical inventory-taking had been used.

(2) a perpetual inventory master file had not been main¬ tained for items of small value.

(3) the storekeeping function had been combined with production and record keeping.

(4) minor supply items had been expensed when acquired.

b. For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is

(1) forwarded to the receiving department.

(2) forwarded to the accounting department.

(3) retained in the purchasing department's files.

(4) returned to the requisitioned.

c. Which of the following procedures would best detect the theft of valuable items from an inventory that consists of hundreds of different items selling for between $1 and $10 and a few items selling for hundreds of dollars?

(1) Maintain a perpetual inventory master file of only the more valuable items with frequent periodic verification of the validity of the perpetuals.

(2) Require an authorized officer's signature on all requisitions for the more valuable items.

(3) Have an independent public accounting firm pre¬ pare an internal control report on the effectiveness of the administrative and accounting controls over inventory.

(4) Have separate warehouse space for the more valuable items with sequentially numbered tags.

(AICPA adapted)