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Financial & Managerial Accounting
Found in: Page 205
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Why would a company’s manager be concerned about the quantity of its purchase returns if its suppliers allow unlimited returns?

The company’s management is concerned about the quantity of its purchase because it might be possible that the quality of the products received by the company is not good, and the returns also increase the cost of the business entity

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Step by Step Solution

Definition of Purchase Returns

The goods purchased by the business entity returned to the supplier due to the wrong product or any defect in the product are reported as purchase returns.

Concern about the quantity of purchase return

  1. The manager of the business entity is concerned about the number of purchase returns because higher returns mean the supplier cannot provide efficient quality of goods, and the supplier needs to be changed.
  2. Another reason for the concern is that higher returns lead to an increase in the cost of the business entity because, for every return, the business entity incurs cost.
  3. A manager is concerned about higher purchase returns in the case where the supplier is allowed to return a smaller quantity of product, as it is difficult to identify problems in such a case and, therefore, find the best solution for that problem.

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