Chapter 3, Problem 10SC

Just-in-time principles Warm Space Inc. manufactures electric space heaters. While the CEO, Gwen Willis, is visiting the production facility, the following conversation takes place with the plant manager, Tyra Chastain: Gwen: As I walk around the facility, I can't help noticing all the materials inventories. What's going on? Tyra: I have found our suppliers to be very unreliable in meeting their delivery commitments. Thus, I keep a lot of materials on hand so as to not risk running out and shutting down production. Gwen: Not only do I see a lot of materials inventory, but there also seems to be a lot of finished goods inventory' on hand. Why is this? Tyra: As you know, I am evaluated on maintaining a low cost per unit. The one way that I am able to reduce my unit costs is by producing as many space heaters as possible. This allows me to spread my fixed costs over a larger base. When orders are down, the excess production builds up as inventory, as we are seeing now. But don't worry—I'm really keeping our unit costs down this way. Gwen: I'm not so sure. It seems that this inventory must cost us something. Tyra: Not really. I'll eventually use the materials, and we'll eventually sell the finished goods. By keeping the plant busy, I'm using our plant assets wisely. This is reflected in the low unit costs that I'm able to maintain. If you were Gwen Willis, how would you respond to Tyra Chastain? What recommendations would you provide to Tyra Chastain?

[Words Limit: Up to 300 words.]  After finishing your accounting degree, you joined an accounting firm. This is a medium-size accounting firm with a reasonable range of clients. You are in an engagement meeting with one of your clients, and your client's management raises some concerns. In particular, the management is concerned that the audit tests that you perform will disrupt operations. Your client has recently implemented a data warehouse. The management suggests that you draw the data for analytical reviews and substantive testing from the data warehouse instead of the operational database. Further, the management points out that operational data are copied weekly into the data warehouse, and all data you need are contained there.   Required: Based on the given scenario, outline your response to the management's proposal and mention any concerns you might have.

Question #66:  Lamar LLC is in the process of updating its revenues and receivables systems with the implementation of new accounting software. James Loden, Inc. is an independent information technology consultant who is assisting Tamar with the project. James has developed the following checklist containing internal control points that the company should consider in this new implementation: Will all data entry clerks and accounting personnel have their own PCs with log‐in IDs and password protection? Will different system access levels for different users be incorporated? Will customer orders be received via the Internet? Has the company identified an off‐site alternative computer processing location? Does the project budget include line items for an upgraded, uninterrupted power source and firewall? Required: In a two (2) page response, describe the control purpose for each point presented in the case.