Reference no: EM132587410

Case Study 01: Last year the Willi-Billi Manufacturing Company purchased over $20 million worth of office equipment under its "special ordering" system, with individual orders ranging from $10,000 to $60,000. 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 pre-numbered 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 $20,000. Checks for less than $20,000 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 $20,000.

Required:

Please answer the following questions

Question a. Describe the weaknesses relating to purchases and payments of "special orders" by the Willi-Billi Manufacturing Company.

Question b. Recommend control procedures that must be added to overcome weaknesses identified in part a.

Question c. Describe how the control procedures you recommended in part b should be modified if Will-Billi 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).

Case Study 02:

The Cyclone Manufacturing Company makes vacuum cleaners. Processing of production orders is as follows: At the end of each week, the production planning department prepares a master production schedule (MPS) that lists which vacuum cleaner models and quantities are to be produced during the next week. A production order preparation program accesses the MPS and the operations list (stored on a permanent disk file) to prepare production order for each vacuum cleaner model that is to be manufactured. Each new production order is added to the open production order master file stored on disk.

Each day, parts department clerks review the open production orders and the MPS to determine which materials need to be released to production. All materials are bar-coded. Factory workers work on individually at specially designed U-shaped work areas equipped with several machines to assist them in completely making a vacuum cleaner. Factory workers scan the bar-codes as they use materials. To operate a machine, the factory workers swipe their ID badge through a reader. This results in the system automatically collecting data identifying who produced each model of vacuum cleaner and how much time it took to make them.

Once vacuum cleaner is finished, it is placed in a box. The last machine in each work cell prints a bar-code label that the worker affixes to the box. The packed and sealed vacuum cleaners are then sent to the warehouse.

Required:

Question d. Prepare data flow diagram of all operations described.