Chapter 5, Problem 4QAP

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.

Wesco Incorporated’s only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retail nurseries and garden stores.   Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delivering a 20,000-pound order of the private brand compound to Zwinger. While the chemical composition of the Zwinger compound differs from that of GrowNWeed, the manufacturing processes are very similar.   The Zwinger compound would be produced in 1,000-pound lots. Each lot would require 25 direct labor-hours and the following chemicals:   Chemicals Quantity in Pounds AG-5 300 KL-2 200 CW-7 150 DF-6 175     The first three chemicals (AG-5, KL-2, and CW-7) are all used in the production of GrowNWeed. DF-6 was used in another…

The Blair Company’s three assembly plants are located in California, Georgia, and New Jersey. Previously, the company purchased a major subassembly, which becomes part of the final product, from an outside firm. Blair has decided to manufacture the subassemblies within the company and must now consider whether to rent one centrally located facility (e.g., in Missouri, where all the subassemblies would be manufactured) or to rent three separate facilities, each located near one of the assembly plants, where each facility would manufacture only the subassemblies needed for the nearby assembly plant. A single, centrally located facility, with a production capacity of 18,000 units per year, would have fixed costs of $900,000 per year and a variable cost of $250 per unit. Three separate decentralized facilities, with production capacities of 8,000, 6,000, and 4,000 units per year, would have fixed costs of $475,000, $425,000, and $400,000, respectively, and variable costs per unit of only…