Page 370 - Accounting Information Systems

C H A P TER 7 The Conversion Cycle 341

3. General Manufacturing Inc.— variances, and to update the general ledger accounts.
Internal Controls Assessment Ronica files all documents in the department.
The production process at General Manufacturing Inc. Required
involves the planning, scheduling, and controlling of
a. Create a data flow diagram of the current system.
the physical products through the manufacturing pro-
cess. General’s manufacturing process begins in the pro- b. Create a system flowchart of the existing system.
duction planning and control department, where June c. Analyze the internal control weaknesses in the sys-
determines the materials and operations requirements tem. Model your response according to the six cate-
and combines information from various departments to gories of physical control activities specified in the
SAS 78/COSO control model.
assess inventory requirements needed to produce a
product. Marketing provides the sales forecast, engi- d. Prepare a system flowchart of a redesigned com-
neering provides the engineering specifications, and the puter-based system that resolves the control weak-
nesses you identified. Explain your solution.
storeroom provides the raw material inventory status.
June reviews this information to prepare a purchase req-
uisition document, which she sends to purchasing. June 4. Bumper Cars, Ltd.—Inventory
then reviews the bill of materials and route sheets and Management and Control
prepares the following documents: work orders, move (Prepared by Julie Fisch and Melinda Bowman, Lehigh
tickets, and materials requisitions. Three copies of each University)
document are prepared. One copy of the work order, In 1983, Mr. Amusement created Bumper Cars, Ltd., a
move ticket, and materials requisitions document is sent company whose main concern was the manufacture and
to cost accounting. The remaining two copies are sent to repair of the exterior shells of bumper cars used in
Mike, the supervisor in the work center. amusement parks. Although the company functioned on
Once Mike receives the production control documents, a small scale for a few years, it has recently expanded to
he initiates the production process. Mike sends a copy of some new areas, including larger-scale amusement parks
the materials requisitions to the inventory storeroom in like Coney Island. Despite the recent increase in busi-
exchange for necessary raw material. When additional ness, Bumper Cars still operates as a small company
raw material is needed for a job in process, they are with limited technology invested in computer systems.
obtained by calling Steve, the storeroom clerk. Materials Many departments run totally manual systems. Because
in excess of those needed for production are kept in the of the expansion, however, Mr. Amusement has taken a
work center and used in the future. When the job passes serious look at the setup of his company and determined
through all production stages and is complete, Mike that some problems exist. The most pressing problem is
sends the finished product to the finished goods ware- in the area of inventory management and control.
house. He files one copy each of the work order, move
ticket, and materials requisition and sends the remaining Inventory Control Department
copies of the work order and move ticket to the cost At Bumper Cars, raw material is stored in a warehouse
accounting department. One of Mike’s duties is to review until it is transferred to the production department for
the job tickets and the employee timecards, which are manufacturing. The inventory control department,
sent to cost accounting and payroll, respectively. which consists of three workers employed under the in-
Steve, in the inventory storeroom, accepts materials ventory manager, Ms. Coaster, works with the inventory
requisitions from the work center employees and at the raw material stage. Each worker’s responsibilities
releases the raw material to the work centers. Steve files involve periodic inventory counts, along with the day-
a copy of the materials requisitions and updates the raw to-day jobs of storing and transferring inventory. Each
material inventory records. At the end of the day he cre- day, when the workers transfer the inventory to work-
ates a journal voucher that is sent to Ronica in the cost in-process, they also attempt to keep track of the levels
accounting department. of inventory to inform the purchasing department to
Ronica receives the following documents: work reorder if the stock of materials becomes too low. How-
orders, move tickets, and materials requisitions from the ever, in their attempt to achieve efficient and speedy
production planning department; job tickets, work transfers of raw material to manufacturing, the workers
orders, and move tickets from the work center; and jour- find it difficult and inconvenient to constantly check for
nal vouchers from the inventory storeroom. Ronica uses low levels of inventory. As a result, the inventory fre-
these to initiate a work-in-process account and to update quently runs out before the workers reorder, which
the work-in-process as work progresses, to calculate causes a gap in raw material needed for production.