Concept explainers
DISASTER RECOVERY PLAN
Hexagon is an online retailer of exotic foods including spices from around the world, canned sauces, and prepackaged breads such as tortillas and naan. The company does 100 percent of its business over the Internet to consumers and through private networks with retail trading partners. Recently, Hexagon moved its sales and business headquarters functions into a warehouse on the outskirts of San Francisco. Prior to the move, the company engaged the services of an architect to redesign the facility to be modern yet in keeping with the original character of the building. While remodeling the warehouse, the architects retained the wooden-shingled exterior and the exposed wooden beams throughout the interior. The data processing center, which contained the servers and networked terminals, was situated in a large open area with high ceilings and skylights. The center was made accessible to the rest of the staff to be consistent with the firm’s philosophy of removing barriers and encouraging a team approach to problem solving. Before occupying the new facility, city inspectors declared the building to be compliant with all relevant building codes.
In a recent compliance audit, Hexagon’s auditors advised the company’s management to develop a disaster recovery plan. Toward this end, the company entered into a mutual aid agreement with several other firms in the area that had similar technology systems. These firms all agreed verbally to provide emergency assistance to each other in the event of disasters or emergencies. In addition, Hexagon implemented a data backup system in which all files are copied daily to tapes and disks and each week the backup storage devices are taken to an offsite facility where they are secured.
The operator’s manual with instructions on how to restore the system is stored in the main data processing area along with a list of names and phone numbers of key IT professionals to contact in case of an emergency.
Required
- a. Describe the internal control weaknesses present at Hexagon.
- b. List the components that should be included in a disaster recovery plan for a company like Hexagon.
- c. What factors, other than those included in the plan itself, should a company consider when formulating a disaster recovery plan?
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Chapter 14 Solutions
Accounting Information Systems
- 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.arrow_forwardBlue Apron IPO Leaves a Bad Taste Founded in 2012, Blue Apron is one of the top meal-kit delivery services doing business in the United States. Started by three co-founders—Matt Salzberg, Matt Wadiak, and Ilia Pappas—Blue Apron provides pre-portioned ingredients (and recipes) for a meal, delivered to consumers’ front doors. According to recent research, the U.S. meal-kit delivery industry is an $800 million business with the potential to scale up quickly, as more and more consumers struggle to find time to go grocery shopping, make meals, and spend time with family and friends in their hectic daily lives. As word spread among foodies about the quality and innovative meals put together by Blue Apron, the company’s popularity took off, supported by millions in start-up funding. Costs to scale the business have not been cheap—estimates suggest that Blue Apron’s marketing costs have been high. Despite the challenges, by early 2017 the company was selling more than 8 million meal kits a…arrow_forwardBlue Apron IPO Leaves a Bad Taste Founded in 2012, Blue Apron is one of the top meal-kit delivery services doing business in the United States. Started by three co-founders—Matt Salzberg, Matt Wadiak, and Ilia Pappas—Blue Apron provides pre-portioned ingredients (and recipes) for a meal, delivered to consumers’ front doors. According to recent research, the U.S. meal-kit delivery industry is an $800 million business with the potential to scale up quickly, as more and more consumers struggle to find time to go grocery shopping, make meals, and spend time with family and friends in their hectic daily lives. As word spread among foodies about the quality and innovative meals put together by Blue Apron, the company’s popularity took off, supported by millions in start-up funding. Costs to scale the business have not been cheap—estimates suggest that Blue Apron’s marketing costs have been high. Despite the challenges, by early 2017 the company was selling more than 8 million meal kits a…arrow_forward
- Basuras Waste Disposal Company has a long-term contract with several large cities to collect garbage and trash from residential customers. To facilitate the collection, Basuras places a large plastic container with each household. Because of wear and tear, growth, and other factors, Basuras places about 200,000 new containers each year (about 20% of the total households). Several years ago, Basuras decided to manufacture its own containers as a cost-saving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a standard cost system was installed in the plant. The following standards have been established for the products variable inputs: During the first week in January, Basuras had the following actual results: The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in January. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higher- quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.25 pound per container. Required: 1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Assume that the 0.25 pound per container reduction of materials occurred as expected and that the remaining effects are all attributable to the higher-quality material. Would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly. 2. CONCEPTUAL CONNECTION Compute the labor rate and efficiency variances. Assuming that the labor variances are attributable to the new manufacturing process, should it be continued or discontinued? In answering, consider the new processs materials reduction effect as well. Explain. 3. CONCEPTUAL CONNECTION Refer to Requirement 2. Suppose that the industrial engineer argued that the new process should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were 9,000 and the labor cost was 99,000. Should the new process be adopted? Assume the variances are attributable to the new process. Assuming production of 6,000 units per week, what would be the projected annual savings? (Include the materials reduction effect.)arrow_forwardPosavek 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.arrow_forwardBlue Apron IPO Leaves a Bad Taste Founded in 2012, Blue Apron is one of the top meal-kit delivery services doing business in the United States. Started by three cofounders—Matt Salzberg, Matt Wadiak, and Ilia Pappas—Blue Apron provides preportioned ingredients (and recipes) for a meal, delivered to consumers’ front doors. According to recent research, the U.S. meal-kit delivery industry is an $800 million business with the potential to scale up quickly, as more and more consumers struggle to find time to go grocery shopping, make meals, and spend time with family and friends in their hectic daily lives. As word spread among foodies about the quality and innovative meals put together by Blue Apron, the company’s popularity took off, supported by millions in start-up funding. Costs to scale the business have not been cheap—estimates suggest that Blue Apron’s marketing costs have been high. Despite the challenges, by early 2017 the company was selling more than 8 million meal kits a month…arrow_forward
- Home Builder Supply, a retailer in the home improvement industry, currently operates seven retail outlets in Georgia and South Carolina. Management is contemplating building an eighth retail store across town from its most successful retail outlet. The company already owns the land for this store, which currently has an abandoned warehouse located on it. Last month, the marketing department spent $10,000 on market research to determine the extent of customer demand for the new store. Now Home Builder Supply must decide whether to build and open the new store. Which of the following should be included as part of the incremental earnings for the proposed new retail store?arrow_forwardDelicious Dinners (DD) is a business entity which offers online cooking classes. Customers pay an annual fee to participate in weekly cooking classes. In early 2021 DD made the decision that their existing customer relationship management database could no longer support their business. DD developed a design and plan to create their own CRM software system. During the application and development stage of the new CRM system DD correctly followed GAAP and capitalized $2,000,000. DD completed the project in July 2021. The CRM system worked very well for DD after the completion of the project. In January 2022 DD the CEO of DD proposed that the CRM system the company developed also could be marketed to other online companies. The company has developed a plan to sell annual licenses to other companies for the CRM system for $24,000 per year. In February 2022 DD sold 4 annual licenses for the CRM system that the company developed to other companies. The 4 businesses all paid DD…arrow_forwardEthics and the Manager Richmond. Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports. Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses. Required: 1. According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Perlman not…arrow_forward
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