Answer requirements a, b, and c at the end of the problem in one to two pages.
Last year the Diamond Manufacturing Company purchased over $10 million worth of office equipment under its "special ordering" system, with individual orders ranging from $5,000 to $30,000. Special orders are for low-volume items that have been included in a department manager's budget. The budget, which limits the types and dollar amounts of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors. The special ordering system functions as follows.
Purchasing A purchase requisition form is prepared and sent to the purchasing department. Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester is indeed a department head. The buyer next selects the appropriate supplier by searching the various catalogs on file. The buyer then phones the supplier, requests a price quote, and places a verbal order. A prenumbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving, and accounts payable. One copy is also filed in the open requisition file. When the receiving department verbally informs the buyer that the ?item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders.
Receiving The receiving department gets a copy of each purchase order. When equipment is received, that copy of the purchase order is stamped with the date, and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink. The receiving clerk then forwards the stamped purchase order and equipment to the requisitioning department head and verbally notifies the purchasing department that the goods were received.
Accounts Payable Upon receipt of a purchase order, the accounts payable clerk files it in the open purchase order file. When a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning department's equipment account. Unpaid invoices are filed by due date. On the due date, a check is prepared and forwarded to the treasurer for signature. The invoice and purchase order are then filed by purchase order number in the paid-invoice file.
Treasurer Checks received daily from the accounts payable department are sorted into two groups: those over and those under $10,000. Checks for less than $10,000 are machine signed. The cashier maintains the check signature machine's key and signature plate and monitors its use. Both the cashier and the treasurer sign all checks over $10,000.
REQUIRED
a. ?Describe the weaknesses relating to purchases and payments of "special orders" by the Diamond Manufacturing Company.
b.? Recommend control procedures that must be added to overcome weaknesses identified in part a.
c.? Describe how the control procedures you recommended in part b should be modified if Diamond reengineered its expenditure cycle activities to make maximum use of current IT (e.g., EDI, EFT, bar-code scanning, and electronic forms in place of paper documents). (CPA Examination, adapted)
d. ?Draw a BPMN diagram that depicts Diamond's reengineered expenditure cycle.
Discussion
1. Controlling inventory has evolved with the widespread use of technology. Describe one advance in technology that helps reduce theft or errors. What does your company use? Does this replace a physical inventory? Why or why not?
2. Compare internal control issues between the invoice approval and payment process in a manual office with that of an automated office where all departments are connected to the same AIS. Is an ink pen signature more desirable than a digital approval? Why or why not?
3. How do companies use responsibility centers?
4. How are the managers of the responsibility centers held accountable?
5. Why is budgeting important? Describe how you use budgeting in your personal life or in your company.
Assignment
Please complete the below problems and submit your answers in the Week 4 Dropbox. See "Syllabus/Due Dates for Assignments & Exams" for due date information.
Martin & Sons is a small wholesale distributor of consumer goods. The company generates a gross margin of 27% of sales. Sales are 35% for cash and 65% on credit. Credit sales are collected in the month following sale, and accounts receivable on June 30, 2014 are the result of June credit sales. Actual and budgeted sales for the period were as follows:
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June (actual)
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$45,000
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July
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$52,000
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August
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$56,000
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September
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$60,000
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October
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$48,000
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The company plans for each month's ending inventory to be 28% of the following month's budgeted cost of goods sold. Half of a month's inventory purchases are paid for in the month of purchase; the other half are paid for in the month following purchase. The accounts payable on June 30 are the result of June purchases of inventory. All monthly expenses were paid monthly. Monthly expenses included: commissions, $9,000; rent, $1,200; other expenses (excluding depreciation), 5% of sales. Depreciation is $1,300 for the quarter and includes depreciation on new assets acquired during the quarter. The assets acquired for cash during the quarter included equipment of $2,100 in July and $3,000 in August. The company wishes to maintain a minimum cash balance of $3,000 at the end of each month. The company has a financing facility that allows the company to borrow in increments of $1,000 at the beginning of each month from a local bank, up to a total loan balance of $30,000. The interest rate on these loans is 1.5% per month, and interest is not compounded. The company, when able, repays the loan plus accumulated interest at the end of the quarter.
Additional information:
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Current assets as of June 30:
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Cash
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$4,000
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Accounts receivable
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$29,250
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Inventory
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$7,100
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Buildings and equipment, net
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$102,550
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Accounts payable
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$22,400
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Capital stock
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$99,000
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Retained earnings
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$22,499.80
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Required:
Using the data above, for quarter ending September 2014, prepare the following:
a. The schedule of the expected cash collections
b. The merchandise purchases budget:
c. The schedule of expected cash disbursements - merchandise purchases.
d. schedule of expected cash disbursement -Selling and administrative expenses
e. The cash budget:
f. An absorption costing income statement,
g. A balance sheet as of September 30.