DEPARTMENT OF ACCOUNTANCY
UNIVERSITY OF ILLINOIS
TO: Mooreman’s Hardware
FROM: Alex Gebert
DATE: March 5, 2013
SUBJECT: Evaluation of Mooreman’s Hardware’s Inventory Controls
The inventory acquisition control objectives of Mooreman’s Hardware help ensure the company goals of customer satisfaction, quality inventory, and accurate inventory levels are being met. Mooreman’s purchasing techniques ensure that the necessary amount and the correct type of inventory are being purchased. By doing so, Mooreman’s various store locations maintain adequate inventory levels to satisfy customer demand. The receiving techniques used by Mooreman’s ensure that incoming orders are error-free in terms of both inventory quantity and inventory quality. The recording process coordinates agreement between the receiving of inventory and the ...view middle of the document...
As a result of the theft, Mooreman’s inventory count may disagree with the packing list provided by the vendor. Because of this disagreement, the company risks losing a vendor that is actually trustworthy.
Mooreman’s uses a series of control activities to ensure the accuracy of its inventory acquisition techniques. During the receiving phase, a warehouse clerk not involved in the physical unloading of inventory maintains the inventory records. Such separation of duties minimizes the likelihood of inventory misreporting. To further minimize inventory misreporting, the company uses a password protected, computer-driven inventory database, which is manually updated using only the physical shipment tallies. Thus, the database and the corresponding inventory levels are based only off of on-hand inventory amounts and are updated by select individuals. Mooreman’s also allows only two employees to initiate inventory purchase orders. By limiting the number of employees with purchasing power, the company controls against unwanted orders.
Businesses that offer a variety of products at several locations, such as a chain of grocery stores, implement inventory control processes similar to those used by Mooreman’s. A grocery store utilizes a central distribution center, like that of Mooreman’s, which manages the inventory levels of individual stores. Within this central distribution center, shipments from a series of vendors have to be unloaded, counted, and paid for. The risks of miscounting and its financial consequences are present. The risk of employee theft during the inventory receiving process is also present. However, unlike the hardware products offered by Mooreman’s and their long-lasting useful lives, grocery stores offer a number of products with much shorter useful lives, such as fresh fruit. Thus, a grocery store must control for the disposal of some of its products directly from its distribution center. Please send questions to firstname.lastname@example.org.