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All Textbook Solutions for Accounting Information Systems

10P 11P 12P 13P 14P 15P 16P 17P 18P 19P 20P 1RQ 2RQ What function does the receiving department serve in the revenue cycle?4RQ 5RQ 6RQ 7RQ 8RQ 9RQ Distinguish between an edit run, a sort run, and an update run.11RQ 12RQ 13RQ 14RQ 15RQ 16RQ In a manual system, after which event in the sales process should the customer be billed?18RQ What document initiates the billing process?20RQ 1DQ 2DQ 3DQ 4DQ 5DQ 6DQ 7DQ 8DQ What financial statement misrepresentations may result from an inconsistently applied credit policy? Be specific.10DQ 11DQ 12DQ 13DQ 14DQ 15DQ How is EDI more than technology? What unique control problems may it pose?17DQ 1MCQ 2MCQ 3MCQ 4MCQ 5MCQ 6MCQ 7MCQ 8MCQ 9MCQ 10MCQ 1P 2P 3P 4P 5P 6P 7P 8P 9P 10P 11P 12P In 1989, Robert Smith opened a small fruit and vegetable market in Bethlehem, Pennsylvania. Originally, Smith sold only produced grown on his family farm and orchard. As the markets popularity grew, however, he added bread, canned goods, fresh meats, and a limited supply of frozen goods. Today, Smiths market is a full range farmers market with a strong local customer base. Indeed, the markets reputation for low prices and high-quality draws customers from other Pennsylvania cities and even from the neighboring state of New Jersey. Currently, Smiths market has 40 employees. These include sales staff, shelf stockers, farm laborers, shift supervisors, and clerical staff. Recently, Smith has noticed a decline in profits and sales, while his purchases of products for resale have continued to rise. Although the company does not prepare audited financial statements, Robert Smith has commissioned your public accounting firm to assess his companys sales procedures and controls. Smiths market revenue cycle procedures are described in the following paragraphs: Revenue Cycle Customers push their shopping carts to the checkout register where a clerk processes the sale. The market has four registers, but they are not dedicated to specific sales clerks because the clerks play many roles in the day-to-day operations. In addition to checking out customers, sales clerks will stock shelves, unload delivery trucks, or perform other tasks as demand in various areas rises and falls throughout the day. This fluid-work demand makes the assignment of clerks to specific registers impractical. At the beginning of the shift, the shift supervisor collects four cash register drawers from the treasury clerk in an office in the back of the market. The drawers contain 100 each in small bills (known as float) to enable the clerks to make change. The supervisor signs a log indicating that he has taken custody of the float and places the drawers into the respective cash registers. Sales to customers are for cash, check, or credit card only. Credit card sales are performed in the usual way. The clerk swipes the card and obtains online approval from the card issuer at the time of sale. The customer then signs the credit card voucher, which the clerk places in a special compartment of the cash register drawer. The customer receives a receipt for the purchase and a copy of the credit card voucher. For payments by check, the clerk requires the customer to present a valid drivers license. The license number is added to the check and the check is matched against a black list of customers who have previously passed bad checks. If the customer is not on the list, the check is accepted for payment and placed in the cash register drawer. The clerk then gives the customer a receipt. The majority of sales are for cash. The clerk receives the cash from the customer, makes change, and issues a receipt for the purchase. At the end of the shift, the supervisor returns the cash register drawers containing the cash, checks, and credit cards receipts to the treasury clerk and signs a log that he has handed in the cash drawers. The clerk later counts the cash and credit card sales. Using a stand-alone PC, he records the total sales amounts in the sales journal and the general ledger sales and cash accounts. The treasury clerk then prepares a deposit slip and delivers the cash, checks, and credit card vouchers to the local branch of the bank two blocks away from the market. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the COSO internal control model. d. Describe the IT controls that should be in place in this system.Posavek is a wholesale supplier of building supplies building contractors, hardware stores, and home-improvement centers in the Boston metropolitan area. Over the years, Posavek has expanded its operations to serve customers across the nation and now employs over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently, Posavek has experienced fierce competition from the large online discount stores. In addition, the company is suffering from operational inefficiencies related to its archaic information system. Posavek revenue cycle procedures are described in the following paragraphs. Revenue Cycle Posaveks sales department representatives receive orders via traditional mail, e-mail, telephone, and the occasional walk-in customer. Because Posavek is a wholesaler, the vast majority of its business is conducted on a credit basis. The process begins in the sales department, where the sales clerk enters the customers order into the centralized computer sales order system. The computer and file server are housed in Posaveks small data processing department. If the customer has done business with Posavek in the past, his or her data are already on file. If the customer is a first-time buyer, however, the clerk creates a new record in the customer account file. The system then creates a record of the transaction in the open sales order file. When the order is entered, an electronic copy of it is sent to the customers e-mail address as confirmation. A clerk in the warehouse department periodically reviews the open sales order file from a terminal and prints two copies of a stock release document for each new sale, which he uses to pick the items sold from the shelves. The warehouse clerk sends one copy of the stock release to the sales department and the second copy, along with the goods, to the shipping department. The warehouse clerk then updates the inventory subsidiary file to reflect the items and quantities shipped. Upon receipt of the stock release document, the sales clerk accesses the open sales order file from a terminal, closes the sales order, and files the stock release document in the sales department. The sales order system automatically posts these transactions to the sales, inventory control, and cost-of-goods-sold accounts in the general ledger file. Upon receipt of the goods and the stock release, the shipping department clerk prepares the goods for shipment to the customer. The clerk prepares three copies of the bill of lading. Two of these go with the goods to the carrier and the third, along with the stock release document, is filed in the shipping department. The billing department clerk reviews the closed sales orders from a terminal and prepares two copies of the sales invoice. One copy is mailed to the customer, and the other is filed in the billing department. The clerk then creates a new record in the accounts receivable subsidiary file. The sales order system automatically updates the accounts receivable control account in the general ledger file. CASH RECEIPTS PROCEDURES Mail room clerks open customer cash receipts, reviews the check and remittance advices for completeness, and prepares two copies of a remittance list. One copy is sent with the checks to the cash receipts department. The second copy of the remittance advices are sent to the billing department. When the cash receipts clerk receives the checks and remittance list, he verifies the checks received against those on the remittance list and signs the checks For Deposit Only. Once the checks are endorsed, he records the receipts in the cash receipts journal from his terminal. The clerk then fills out a deposit slip and deposits the checks in the bank. Upon receipt of the remittances, the billing department clerk records the amounts in the accounts receivable subsidiary ledger from the department terminal. The system automatically updates the AR control account in the general ledger Posavek has hired your public accounting firm to review its sales order procedures for internal control compliance and to make recommendations for changes. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.3ICC (Prepared by Will Richens and Michael Catchpole, Lehigh University) CUSTOM FABRICATIONS Inc., is a bicycle manufacturing firm founded in 2000 that currently employs 126 people. The company produces custom bicycles in its factory located near Los Angeles, California. Each bicycle is tailored to a rider based on a number of different measurements, including height, weight, inseam, and arm length. These measurements are taken at 30 professional bicycle shops around Southern California, which are certified to size CUSTOM FABRICATIONS cycles. By accepting orders only through licensed dealers, CUSTOM FABRICATIONS ensures that each bike matches its rider precisely. CUSTOM FABRICATIONSs custom bikes are considered extremely high quality, and the company takes pride in using only the best components sourced from around the world. Accordingly, CUSTOM FABRICATIONS purchases from a cast of hundreds of suppliers, chosen for its commitment to quality and reliability. Demand for CUSTOM FABRICATIONSs cycles has grown exponentially in recent years. The surge in demand was somewhat unexpected and the companys factory has been operating at capacity for over a year. As a result, current orders face a production backlog of approximately five to six weeks. The companys operations have been further hampered by severe inefficiencies and control weaknesses attributed to its legacy accounting system. Your firm has been hired as an outside consultant to suggest improvements in the companys accounting procedures. The following paragraphs describe the companys revenue cycle. Revenue Cycle SALES ORDER SYSTEM. The sales order process begins when a licensed CUSTOM FABRICATIONS dealer faxes a completed customer order and measurement form to the sales department. When the fax is received, a sales representative calls the dealer to confirm the order details and generates a quote based on the complexity of the order. The sales clerk then enters the measurements and quoted price into his PC terminal, which automatically generates a sales order form. The clerk prints three hard copies of the sales order form. The first copy is sent to the billing department and the second is sent to the factory. The clerk files the third copy, along with the customer order in the sales departments open customer order file. The billing department clerk uses the first copy of the sales order to compute the final sales price and manually prepares two copies of the customer invoice. One copy of this invoice is sent to the customer, while the second is used by the billing clerk to update the sales order journal and accounts receivable subsidiary from his terminal. At the end of each day, the clerk prints out a hard-copy summary of the AR ledger and the sales journal and forward them to the general ledger department. When the second copy of the sales order is received in the factory, it is forwarded to the production planning clerk for scheduling. The clerk sets a production date and manually prepares one copy of the materials requisition form and two copies of the production order. The first copy of the production order is sent to the sales department and filed in the open customer order file to inform the customer of the intended date of production. The second copy of the production order form and the materials-requisition form are temporarily filed in the factory. At the beginning of each day, the factory production line manager accesses the temporary production file and pulls the production orders to be completed for the day. He then forwards the materials-requisition form to the warehouse to obtain the raw material and components needed for production. Once the materials have been forwarded to the production department, the warehouse clerk updates the digital inventory subsidiary account from his terminal. At the end of every day, the clerk prints a hardcopy journal voucher and sends it to the general ledger department. When production of a cycle is completed, the bike and the second copy of the production order form are sent to the warehouse to await shipping. The warehouse clerk receives a bike and its accompanying production order, and he or she packs the bike for shipping. The clerk then manually prepares a stock release document from the production order document. Finally, the warehouse clerk forwards the packaged bike, along with the stock release document, to the shipping department. On the date the bike is due to be shipped, the shipping clerk uses the stock release document to prepare three copies of the bill of lading and one copy of the packing slip from the department PC. From this PC, he updates the companys shipping log. Two copies of the bill of lading and the packing slip are forwarded along with the packaged bike to the carrier. The third copy of the bill of lading is sent the sales department to close the open customer order file. At the close of business each day when the general ledger department clerk receives journal vouchers and the AR summary, he updates the GL accounts from the PC in the department. The AR summary and vouchers are filed in the department. CASH RECEIPTS SYSTEM. Customer payments are processed in CUSTOM FABRICATIONSs mail room along with all other mail received by the organization. A mail room clerk selects and opens customer remittances envelopes and reviews the checks and remittance advice. Next, the clerk manually prepares three copies of a remittance list. The first copy of the remittance list is sent, along with the checks, to the cash receipts department. Once the clerk there receives the remittance list, he or she reconciles the checks and remittance list and updates the cash receipts journal from his PC. He then prints two copies of the deposit slip, which are sent along with the checks to the bank. The second copy of the remittance list, along with the remittance advice, is sent to the billing department. The clerk reconciles these documents and updates the accounts receivable subsidiary account to reflect the payment received. The third remittance list is sent to the general ledger department, which uses it to update the accounts receivable control and cash accounts. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. Describe the risks associated with these control weaknesses e. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.6ICC 1RQ What purpose does a purchasing department serve?3RQ 4RQ 5RQ 6RQ 7RQ 8RQ 9RQ Some organizations do not use an AP subsidiary ledger or a purchases journal. How is this possible?What is the purpose of the blind copy of a PO?12RQ 1DQ 2DQ 3DQ The level of day-to-day department activity in advanced technology systems is significantly lower than that of basic technology systems. Are these departments no longer necessary?5DQ What is central to a successful EDI implementation?Discuss the objective of eliminating the receiving function. What accounting/audit problems need to be resolved?What purpose does multilevel security control play in an integrated purchases/cash disbursements system?9DQ 10DQ Which of the following statements is correct? a. The cash disbursement function is part of accounts payable. b. Cash disbursement is a treasury function. c. Cash disbursement is an independent accounting function. d. The cash disbursement function is part of the general ledger department.Which of the following represents incompatible tasks? a. Accounts payable is responsible for paying invoices. b. Cash disbursement maintains the check register. c. Accounts payable maintains the AP subsidiary ledger. d. Accounts payable is responsible for authorizing payment of invoices.3MCQ 4MCQ 5MCQ 6MCQ 7MCQ Which of the following tasks should the cash disbursements clerk NOT perform? a. Approve the liability b. Review the supporting documents for completeness and accuracy c. Prepare checks d. Mark the supporting documents paid Which ledger can be updated solely from the receiving report? a. General ledger b. Standard cost inventory ledger c. Actual cost inventory subsidiary ledger d. Accounts payable subsidiary ledger 10MCQ 1P INVENTORY ORDERING ALTERNATIVES The flowchart for Problem 2 illustrates two alternative inventory ordering methods. Required a. Distinguish between a purchase requisition and a purchase order. b. Discuss the primary advantage of alternative two over alternative one. Be specific. c. Under what circumstances can you envision management using alternative one rather than alternative two?3P 4P 5P 6P 7P 8P 9P 10P 11P UNRECORDED LIABILITIES You are auditing the financial statements of a New York City company that buys a product from a manufacturer in Los Angeles. The buyer closes its books on June 30. Assume the following details: Terms of trade, FOB shipping point June 10, buyer sends purchase order to seller June 15, seller ships goods July 5, buyer receives goods July 10, buyer receives sellers invoice Required a. Could this transaction have resulted in an unrecorded liability in the buyers financial statements? b. If yes, what documents provide audit trail evidence of the liability? c. On what date did the buyer realize the liability? d. On what date did the buyer recognize the liability? New assumption: Terms of trade, FOB destination. a. Could this transaction have resulted in an unrecorded liability in the buyers financial statements? b. If yes, what documents provide audit trail evidence of the liability? c. On what date did the buyer realize the liability? d. On what date did the buyer recognize the liability?SMITHS MARKET (SMALL BUSINESS ACCOUNTING SYSTEM) In 1989, Robert Smith opened a small fruit and vegetable market in Bethlehem, Pennsylvania. Originally, Smith sold only produce grown on his family farm and orchard. As the markets popularity grew, however, he added bread, canned goods, fresh meats, and a limited supply of frozen goods. Today Smiths Market is a full-range farmers market with a strong local customer base. Indeed, the markets reputation for low prices and high quality draws customers from other Pennsylvania cities and even from the neighboring state of New Jersey. Currently Smiths has 40 employees. These include sales staff, shelf Stockers, farm laborers, shift supervisors, and clerical staff. Recently, Smith has noticed a decline in profits and sales, while his purchases of products for resale have continued to rise. Although the company does not prepare audited financial statements, Robert Smith has commissioned your public accounting firm to assess his companys sales procedures and internal controls. Smiths market expenditure cycle procedures are described below. Expenditure Cycle The expenditure cycle begins in the warehouse adjacent to the market, where Smiths keeps its inventory of nonperishable goods such as canned goods and paper products. The company also maintains a one-day inventory of produce and other perishable products in the warehouse so clerks can quickly restock the shelves when necessary. At close of business each evening, the warehouse clerk reviews the market shelves for items that need to be replenished. The clerk restocks the shelves and adjusts the digital stock records accordingly from the warehouse PC. At this time, the clerk takes note of what needs to be reordered from the suppliers and prints purchase orders from the PC. Depending upon the nature of the product and urgency of the need, the clerk either mails the purchase order to the supplier or orders by phone. Phone orders are followed up by faxing the purchase order to the supplier. When the goods arrive from the vendor, the warehouse clerk reviews the packing slip, restocks the warehouse shelves, and updates the stock records from the PC. At the end of the day the clerk prepares a hard-copy purchases summary from the PC and sends it to the treasury clerk for posting to general ledger. The vendors invoice is sent to the accounting clerk. She examines it for correctness and files it in a temporary file until it is due to be paid. The clerk reviews the temporary file daily, looking for invoices to be paid. Using the accounting department PC, the clerk prints a check and records it in the digital check register. She then files the invoice and mails the check to the supplier. At the end of the day she prints a hard-copy journal voucher from the PC, which summarizes the days cash disbursements, and sends it to the treasury clerk for posting to the general ledger. Using the department PC, the treasury clerk posts the journal voucher and purchases summary information to the appropriate GL accounts. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the current system. c. Analyze the physical internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) internal control model. d. Describe the IT controls that should be in place in this system.POSAVEK REMODELING AND BUILDING SUPPLY COMPANY (CENTRALIZED SMALL BUSINESS ACCOUNTING SYSTEM) Posavek is a wholesale supplier of building supplies to building contractors, hardware stores, and home-improvement centers in the Boston metropolitan area. Over the years, Posavek has expanded its operations to serve customers across the nation and now employs over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently, Posavek has experienced fierce competition from the large online discount stores. In addition, the company is suffering from operational inefficiencies related to its archaic information system. Posaveks expenditure cycle procedures are described in the following paragraphs. Expenditure Cycle Posavek uses a centralized accounting system for managing inventory purchases and recording transactions. The system is almost entirely paperless. Each department has a computer terminal that is networked to the purchases/AP system that is run from a small data processing department. All accounting records are maintained on centralized computer files that are stored on a file server in the data processing department. Purchasing The process begins in the purchasing department. Each morning the purchasing agent reviews the inventory levels from his department terminal and searches for items that have fallen to their reorder points and need to be replenished. The purchasing agent then selects the vendors and creates digital purchase orders in the purchase order file. He then prints two hard copies of each purchase order and sends them to the respective vendors. Receiving When the items are received, the receiving department clerk reconciles the goods with the attached packing slip and the digital purchase order, which he accesses from his computer terminal. The clerk then creates a digital receiving report, stating the condition of the materials received. The system automatically closes the purchase order previously created by the purchasing agent. In addition, the receiving clerk prints a hard copy of the receiving report, which he sends with the inventory to the warehouse where the items are stored. Warehouse Upon receipt of the inventory, the warehouse cleric reconciles the items with the receiving report and updates the inventory subsidiary ledger. The accounting system automatically and immediately updates the inventory control account in the general ledger. Accounts Payable Once the AP clerk receives the vendors invoice, she reconciles it with the purchase order and receiving report from her terminal. The clerk then creates a digital vendor invoice record and sets a due date for payment. The system automatically updates the AP control account in the general ledger. Daily, the AP clerk reviews the open vendor invoice records from her terminal, looking for items that need to be paid. The clerk then records the payment in the digital check register and closes the open vendor invoice. Finally, the clerk prints a hard copy of the check and sends it to the vendor. The system automatically updates the AP and cash GL accounts. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.GREEN POND NURSERY (STANDALONE PC-BASED ACCOUNTING SYSTEM) Green Pond Nursery Supply (GPNS) is a garden center wholesaler in eastern Pennsylvania that sells and distributes a wide range of garden products and equipment including organic fertilizers, premium flower and grass seeds, organic pesticides, and garden spreaders. GPNSs customers are primarily small garden centers and landscape companies in the Mid-Atlantic States. Sales are on credit. GPNSs current information system includes manual procedures supported by independent (non-networked) PCs in each department Communications between departments are entirely through hard-copy documents. Recently, GPNS has been receiving complaints from suppliers regarding payment errors. Management believes that these complaints stem, in part, from their antiquated computer system. You have been hired to assess GPNSs procedures and internal controls. The following is a description of GPNSs expenditure cycle. Purchasing Process The purchasing agent receives an inventory status report from the inventory control department, which identifies the items that need to be reordered. The agent selects the suppliers, enters this information into the computer terminal to create a digital purchase order, and then prints three hard copies of the purchase order. He sends one copy to the supplier; one copy to the AP department, where it is filed temporarily, and files the third copy in the purchasing department. When the goods are received, the receiving department inspects and verifies them using the packing slip, which is attached to the goods. The receiving clerk manually prepares two hard copies of a receiving report. One copy accompanies the goods to the warehouse for storage. The receiving clerk sends the second copy to the purchasing agent who closes the open purchase order. The purchase agent then forwards the receiving report to the inventory control clerk. The inventory control clerk receives the receiving report and updates the inventory subsidiary. At the close of business, the clerk prepares an inventory summary, which he sends to the general ledger clerk. Accounts Payable and Cash Disbursements Procedures The AP clerk receives the suppliers invoice and reconciles it with the purchase order in the temporary file. From her computer terminal, the clerk records the purchase in the purchases journal and records the liability by adding a record to the AP subsidiary ledger. The purchases order and invoice are then filed in the department. Each day, the AP clerk visually searches the AP subsidiary ledger from her terminal for invoices that are due to be paid. The clerk prepares the check and records it in the digital check register. The negotiable portion of the check is mailed to the vendor, and a check copy is filed. The clerk then closes the liability in the AP subsidiary ledger and prepares a journal voucher, which she sends to the general ledger clerk. Upon receipt of the inventory summary and journal voucher, the general ledger clerk updates the inventory control, AP control, and cash accounts. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.4ICC 5ICC 6ICC 7ICC 8ICC Which document is used by the cost accounting department to allocate direct labor charges to work in process?2RQ 3RQ Why should employee paychecks be drawn against a special checking account?5RQ 6RQ 7RQ 8RQ 9RQ 10RQ What are the objectives of a fixed asset system?How do fixed asset systems differ from purchases systems?What are three tasks of the fixed asset system?What information is found on the depreciation schedule? How can this information be verified?Why is it crucial to the integrity of the financial statements that the fixed asset department be informed of asset improvements and disposals?16RQ 17RQ What document shows when fixed assets are fully depreciated?Who should authorize disposal of fixed assets?Assets used for production are secured in a warehouse. Who has custody of fixed assets?What is the importance of the job ticket? Illustrate the flow of this document and its information from inception to impact on the financial statements.2DQ 3DQ 4DQ Discuss some specific examples in which information systems can reduce time lags and how the firm is positively affected by such time lags.Discuss some service industries that may require their workers to use job tickets.7DQ If an asset that is not fully depreciated is sold or disposed, but the fixed asset records are not adjusted, what effect will this have on the financial statements?Discuss the fundamental risk and control issues associated with fixed assets that are different from raw materials and finished goods.10DQ 11DQ Describe an internal control that would prevent the charging of depreciation expense to the maintenance department for a sweeper that is now located in and used by the engineering department.13DQ What negative consequences result when fixed asset records include assets that the firm no longer owns?1MCQ 2MCQ 3MCQ 4MCQ Which one of the following documents captures the total amount of time that individual workers spend on each production job? a. Time card b. Job ticket c. Personnel action form d. Labor distribution form e. None of the above Which of the following are not fixed asset system tasks? a. Authorizing the acquisition of fixed assets b. Recording depreciation expense c. Computing gain and/or loss on the disposal of fixed assets d. All of the above are tasks e. a and b are not tasks but c is All of the following controls are likely to apply to a fixed asset system except: a. formal analysis of the purchase request b. review of the assumptions used in the capital budgeting model c. development of an economic order quantity model d. estimates of anticipated cost savings All of the following data items are likely to be included in a fixed asset record except: a. residual value of the asset b. book value of the asset c. depreciation method being used d. location of the asset e. all of the above would likely be included The following are all transactions processed in the fixed asset system except: a. purchase of raw materials b. purchase of building c. repair of equipment d. sale of company van e. all are fixed asset transactions 10MCQ PAYROLL FRAUD John Smith worked in the stockyard of a large building supply company. One day he unexpectedly left for California, never to return. His foreman seized the opportunity to continue to submit time cards for John to the payroll department. Each week, as part of his normal duties, the foreman received the employee paychecks from payroll and distributed them to the workers on his shift. Because John was not present to collect his paycheck, the foreman forged Johns name and cashed it. Required Describe two control techniques to prevent or detect this fraud scheme.2P 3P 4P 5P 6P 7P 8P FIXED ASSET SYSTEM-FRAUD POTENTIAL Holder Co. maintains a large fleet of automobiles, trucks, and vans for its service and sales force. Supervisors in the various departments maintain the fixed asset records for these vehicles, including routine maintenance, repairs, and mileage information. This information is periodically submitted to the fixed asset department, which uses it to calculate depreciation on the vehicle. To ensure a reliable fleet, the company disposes of vehicles when they accumulate 80,000 miles of service. Depending on usage, some vehicles reach this point sooner than others. When a vehicle reaches 80,000 miles, the supervisor is authorized to trade it for a new replacement vehicle or to sell it privately. Employees of the company are given the first option to bid on the retired vehicles. Upon disposal of the vehicle, the supervisor submits a disposal report to the fixed asset department, which writes off the asset. Required Discuss the potential for abuse and fraud in this system. Describe the controls that should be implemented to reduce the risks.10P 11P 12P 1ICC 2ICC 3ICC 4ICC 5ICC 6ICC 1RQ 2RQ Distinguish between continuous, batch, and make-to-order processing.4RQ What are the primary determinants for both materials and operations requirements?What are the objectives of inventory control in the production process?7RQ What documents are needed for cost accounting clerks to update the work-in-process accounts with standard charges?What types of management reports are prepared by the cost accounting system?What document signals the completion of the production process?11RQ 12RQ 13RQ What is meant by the statement Inventories camouflage production problems and can cause overproduction? What is wrong with overproduction if you already own the raw material?What are the primary goals of lean manufacturing?Distinguish between activities and cost objects in activity-based costing.Differentiate between essential and nonessential activities.18RQ Define computer-integrated manufacturing.20RQ Discuss the importance of the move ticket to the cost accounting department.How realistic are the assumptions of the economic order quantity model? Discuss each assumption individually.Explain why the economic order quantity is the intersection of the ordering-cost curve and the carrying-cost curve.Supervisors in the work centers oversee the usage of raw material in production; explain why the work centers do not keep the records of the work-in-process.5DQ 6DQ 7DQ How does automation help achieve manufacturing flexibility?9DQ How can poor quality be expensive to the firm, especially if low-cost raw materials are used to reduce cost of goods sold and raise net income?Discuss how an emphasis on financial performance of cost centers, as measured by traditional cost accounting information, may lead to inefficient and ineffective production output.12DQ How are cost structures fundamentally different between the traditional and computer-integrated manufacturing environments?14DQ 15DQ Discuss the advantages of activity-based costing.Discuss the disadvantages of activity-based costing.Explain why traditional cost allocation methods fail in a computer-integrated manufacturing environment.Explain the concept of a product family and its relationship to value stream accounting.Explain the relationship between MRP II and ERP.1MCQ Which of the following is NOT a problem associated with standard cost accounting? a. Standard costing motivates management to produce large batches of products and build inventory. b. Applying standard costing leads to product cost distortions in a lean environment. c. Standard costing data are associated with excessive time lags that reduce their usefulness. d. The financial orientation of standard costing may promote bad decisions. e. All of the above are problems with standard costing.Which of the following is NOT a principle of lean manufacturing? a. Achieve high inventory turnover rate. b. All activities that do not add value and maximize the use of scarce resources must be eliminated. c. Products are pushed from the production end to the customer. d. A lean manufacturing firm must have established and cooperative relationships with vendors.Which line segment represents the reorder lead time? a. DC b. B c. F d. AE e. AD Which line segment represents the demand? a. DE b. AE c. AC d. DC e. B Which statement describes the evolution of enterprise systems? a. MRP II evolved from MRP and MRP II evolvedinto ERP. b. MRP evolved directly from ERP. c. ERP evolved into MRP and MRP evolved intoMRP II. d. None of the above is true.Which of the following statements regarding traditional accounting is true? a. Traditional accounting does not provide managers in a JIT setting with timely information. b. The financial orientation allows for effective measuring disparate items. c. Overhead allocations may lead to cost distortions. d. All of the above are true statements. e. A and C are true, but B is not true.Refer to the equation for the EOQ in the text. Car Country, a local Ford dealer, sells 1,280 small SUVs each year. Keeping a car on the lot costs Car Country 200 per month, so the company prefers to order as few SUVs as is economically feasible. However, each time an order is placed, the company incurs total costs of 300. Of this 300, 240 is fixed and 60 is variable. Determine the companys economic order quantity. a. 8 b. 56 c. 18 d. 16 e. 62 DOCUMENT FLOWCHART Prepare a flowchart that illustrates the sequence in which the following source documents are prepared. a. Bill of materials b. Sales forecast c. Materials requisition d. Move ticket e. Production schedule f. Route sheet g. Work order 2P 3P 4P 5P ZERO DEFECTS PROCESS Northern Tractor is a manufacturer of commercial and consumer garden tractors. In its 30 years of operation, Northern has followed a traditional manufacturing process that included maintaining a significant raw material inventory. In an effort to streamline the manufacturing process and reduce inventory carrying costs, Northerns CEO wants to switch to a JIT manufacturing process. Production consultants have informed the CEO that moving to JIT will require a new philosophy; one aspect of this is moving toward zero-defect manufacturing. Under this philosophy, if a defective part from an out-of-control process is detected, no more units should be produced until the process is corrected. The consultants estimate that the production process may occasionally be shut down anywhere from 30 minutes to several hours. Discuss the advantages and disadvantages of this new approach.ACTIVITY DRIVERS Cut It Up, Inc., is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores. For years, the company has allocated overhead based on total machine hours. A recent assessment of overhead costs has shown that these costs are now in excess of 40 percent of the companys total costs. As an attempt to better control overhead, Cut It Up is adopting an activity-based costing system. Each cutting board goes through the following processes: a. CuttingBoards are selected from inventory and are cut to the required width and length. Imperfections in boards (e.g., knots and cracks) are identified and removed. b. AssemblyCut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together until the glue sets. c. ShapingOnce the glue has set, the boards are sent to the shaping process, where they are cut into specific shapes. d. SandingAfter being shaped, the cutting boards must be sanded smooth. e. FinishingSanded cutting boards receive a coat of mineral oil to help preserve the wood. f. PackingFinished cutting boards are placed in boxes of 12. The boxes are sealed, addressed, and sent to one of the kitchen stores. Required What do you suppose are components of overhead for this company? Determine a logical cost driver for each process.LEAN MANUFACTURING PRINCIPLES Write an essay outlining the key principles of lean manufacturing.Internal Control Cases UTICA LIGHTING COMPANY (CENTRALIZED SYSTEM WITH DISTRIBUTED TERMINALS) Utica Lighting Company (ULC) is a manufacturer of outdoor lighting systems for patios, walkways, and public areas. It markets its product to landscaping companies and local municipalities. ULC employs a centralized computer system with distributed terminals in the various departments. Recently the company has been having manufacturing delays and cost overruns. ULC has hired your auditing firm to assess its operations and internal control procedures. ULCs conversion cycle is triggered by a report from the finished goods warehouse. The warehouse clerk periodically reviews the inventory records in a search for low-stock items. When the quantity on hand of an inventory item in the finished goods warehouse falls below its pre-established minimum, the warehouse clerk sends a digital inventory status report from the warehouse terminal to production planning and control advising them to schedule a production batch run for the item in question. Upon receipt of the report the production planning and control department clerk accesses the digital bill of materials and the routing sheet files for the items to be produced and adds the production details to the digital production schedule. The system automatically adds a record to the open work order file and sends a digital work order to the work center supervisors terminal and to the cost accounting clerks terminal. The work center supervisor accesses the work order from his terminal and prints hard-copy move tickets and material requisitions for each stage in the production process. Production employees take the materials requisitions to the storekeeper and secure the components, subassemblies, and raw materials needed to perform their production tasks. If excess materials beyond the standard amount are needed, the supervisor prepares additional materials requisitions. The employees also complete job time tickets after each stage in the process to reflect the time spent on the job. When the employees complete their tasks, they send the move tickets and time tickets to the cost accounting department. The storekeeper receives the materials requisitions and releases the materials into production. He then updates the raw material inventory records and sends the requisition to cost accounting. When inventories of component parts and raw materials fall to their reorder points, the storekeeper prepares purchase orders and sends them to the respective vendors. Vendors deliver raw material inventories directly to the storeroom, at which time the storeroom clerk inspects them and updates the digital raw materials subsidiary ledger. Each day the storekeeper prepares a journal voucher and posts to the general ledger raw material control account. The cost accounting clerk receives the digital work order and initiates a new WEP account for the batch. During the production process, the clerk receives hard-copy move tickets, materials requisitions, and job tickets from the work centers, which the clerk uses to update WIP account. When production is complete, the clerk closes the WIP account for the batch and transfers it to the finished good inventory subsidiary ledger. At the days end, the cost accounting clerk prepares a digital journal voucher reflecting the WIP status and any transfers from WIP to finished goods inventory. The clerk then posts the journal voucher to the WEP and FG general ledger control accounts. Required a. Prepare a data flow diagram of the current system. b. Prepare a system flowchart of the existing system. c. Describe the internal control weaknesses.LAWN WIZARD INC. (MANUAL SYSTEM WITH STAND-ALONE PC SUPPORT) Law Wizard Inc. (LWI) is a manufacturer of a range of walk-behind gasoline lawnmowers, which it markets to garden centers and home improvement centers. LWI employs a batch production process whose inventory management, production planning, and accounting procedures consist of a combination of manual activities supported by stand-alone (non-networked) PC technology. The company is experiencing production delays and cost overruns. Its CEO has hired your firm to review its procedures and make recommendations for improving its operations. The batch production process is initiated by receipt of individual customer orders, which are grouped together in batches for manufacturing. The production planning and control clerk enters the orders into the digital production schedule from his department PC and prints two hard-copy work orders. He sends one of these to cost accounting and the other to the production department. The production department supervisor enters the work order into a PC application. The system automatically creates an open work order record and prints the hard-copy move tickets and materials requisitions. The supervisor distributes the move tickets and two copies of the purchase requisitions to each work center invoked in the production process. Work center employees exchange the material requisitions for assembly parts and other materials needed to complete the batch. If additional parts or materials are needed beyond the standard quantity, the supervisor issues additional material requisitions. As the production is completed in each work center, employees record their labor time for each batch on hard-copy job cards, which they send to cost accounting along with the move ticket. Finally, upon completion of the batch, the supervisor closes the open work order file. The storekeeping clerk files one copy of the material requisition in the department and updates the raw materials inventory file from the computer in his office. The manager then sends the second copy of the material requisition to cost accounting. At the end of the day, the manager prepares a hard-copy journal voucher and sends it to the general ledger department. The cost accounting clerk receives the work order and sets up a WIP account for the batch. Throughout the production period, the clerk also receives move tickets, job tickets, and materials requisitions, which she uses to post to WIP. At the end of each day, the cost accounting clerk prepares a hard-copy journal voucher, which she sends to general ledger department. The journal voucher reflects the total value of WIP and transfers to finished good inventory. The general ledger clerk receives the journal vouchers, posts to the appropriate GL accounts, and files the journal vouchers in the department. Required a. Create a system flowchart of the existing system. b. What risks exist in the system as it is currently designed? c. Describe the changes needed to reduce the risks.4ICC 5ICC What information is contained in a journal voucher?How are journal vouchers used as a control mechanism?3RQ 4RQ What is the purpose of a responsibility center file?6RQ Name, in order, the 11 steps of the financial reporting process.8RQ When are adjusting entries made, and what is their purpose? When are the corresponding voucher entries made?10RQ 11RQ 12RQ 13RQ 14RQ What is an XBRL taxonomy?16RQ 17RQ Explain how the formalization of tasks promotes internal control.19RQ Distinguish between narrow and wide span of control. Give an example of tasks appropriate to each type.21RQ 22RQ Contrast the four decision typesstrategic planning, tactical planning, management control, and operational controlby the five decision characteristicstime frame, scope, level of details, recurrence, and certainty.24RQ What management levels are more likely to deal with unstructured problems? With structured problems? Why?26RQ 27RQ 28RQ What are the two phases of responsibility accounting?What are the three most common forms of responsibility centers?What is goal congruence?32RQ 33RQ 34RQ Explain some reporting techniques that may cause dysfunctional behavior by a manager.36RQ What types of variances are found on cost center reports? Explain what each variance is measuring and why this information is important Distinguish between a profit center and an investment center. Draw a diagram illustrating the relationship between cost, profit, and investment centers.39RQ 40RQ 41RQ 1DQ 2DQ Explain how erroneous journal vouchers may lead to litigation and significant financial losses for a firm.4DQ 5DQ 6DQ 7DQ 8DQ If management control and strategic planning decisions do not receive a high level of support from traditional information systems, then how do they get the support?10DQ

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