Case4&5Chapter7 Tan KentLimmuel

Kent Limmuel B. Tan

2010-44012

Case 4 Chapter 7: Bumper Cars Ltd.

The suggestions offered by Mr. Flume, Mr. Ferris and Ms. Coaster are for my own opinion, possible valid solutions for inventory problems of the company but we must look into the possible drawbacks of the solutions before deciding the best. The benefits must outweigh the disadvantages for us to consider the solutions. For my own opinion, out of the three solutions, the solutions made by Mr. Flume and Ms. Coaster were better compared to the solution by Mr. Ferris, whom I think will not solve the problem because it is targeted to the production department that in the case was not the source of the problem. We should focus on solutions that would help the inventory control department, which was where the problem exist. Ms. Coaster’s solution to hire more employees to help in the inventory control would help solve the problem because it was focused on the main source of the problem. The understaffed inventory department comprises one of the most significant problems of the company because each worker has too many responsibilities, and therefore they perform each responsibility in a highly inefficient manner. Hiring more people would help incumbent employees to concentrate on performing fewer jobs more effectively. In addition, this solution would generate less additional costs to the company when implemented. With the new workers, low inventory will be discovered and restocked before a lag in production occurs. But we should consider that this solution is best for the recent situation and would be costly if the company would expand its operations because this would mean hiring a great number of workers.

Another better solution was Mr. Flume’s plan to implement a company-wide computer system. This solution would effectively meet the needs of the expanding company by coordinating all the departments and reducing manual labor problems. All operations would become more efficient and effective with the installation of an overall system. This solution is not without its drawbacks, however. First of all, as Mr. Amusement suggested, the cost of such a system is too excessive for a small company. Between research, implementation, maintenance, and repairs, the company would spend all its profits just to keep the system in order. At some point in the future, the company will probably break even, then continue to make money as the benefits of the computer set in, but the losses incurred in the immediate future might cause the company to fold before the system can take hold. In conclusion, a company-wide system might be a future consideration, but at the present, this solution is impractical. Finally, I would suggest that Ms. Coaster’s solution is better for the present situation but it is also possible that the company can implement a small scale computer system implemented in the inventory control, purchasing, and production departments. As we know that automation has many advantages and it could help ease the overall processes.

Case 5 Chapter 7: Blades R Us

Internal Control Transaction Authorization

Conversion Cycle Procedures 



No Move Tickets—There are no

Procurement Procedures 

The immediate authorization control

authorization activities for the

issue is Mr. Dresden’s handling of the

movement of product between work

checks. Again, he has too much control

centers.

over the writing and signing of the

No Excess Material Document—If a

checks before they are distributed to

work center needs more material they

the suppliers. I included this control

do not need any special permission to

issue with supervision as well because I

get it.

believe that it pertains to both of these issues.

Segregation of duties



No Storekeeping Department—The



One of the problems with Blades ‘R’

Inventory Control Department

Us concerns the manner in which the

maintains the records for the inventory

inventory records are updated in the

and has custody of the inventory.

Inventory Department. As is explained,



Material Requisitions Issued by Work

Mr. Sampson uses the purchase order

Centers—The work centers issue

he receives from Ms. Connolly to

material requisitions whenever they

update the records. This current system

need materials instead of the

is relying on the confidence that the

production planning and control

supplier will ship the goods promptly,

department.

with the right quantity, and without any defects. There is never any use of the receiving report by the Inventory Department to update records. 

Mr. Dresden should not have the ability to look over the records to write the checks and also be able to write and sign the checks off. In this case Mr. Dresden is exercising too much control over an important part of the Accounts Payable Department.

Supervision





Supervision is necessary in the



Unfortunately, when Mr. Hiro

work centers to keep track of the

receives the goods he never truly

products and the raw materials and

inspects the goods to make sure

be sure they are not being stolen or

everything is correct. Mr. Hiro

misplaced.

takes the packing slip numbers as

The foreman should make sure that

correct and legitimate. He never

the payroll time cards are accurate.

does the physical count, which is so important. 

Mr. Dresden has a lot of control when he is dealing with the checks. He has the ability to write the checks and sign for them as well. Without appropriate supervision, Mr. Dresden could be writing out checks to fake companies and merely updating the General

Ledger with the fake account summaries. 

Mr. Sampson in the Inventory Department also needs to have someone checking his actions. He could easily manipulate the purchase orders coming through the warehouse enabling him to steal goods from the inventory department.

Accounting Records





No Job Time Tickets—There are no



Ms. Connoly has also committed

job time tickets sent to cost accounting

another error in not printing up a “blind

to verify the time spent on each job.

copy” of the purchase order to be sent

No Prenumbered Forms—The forms

to the Accounts Payable Department.

used for all the paperwork are not

This blind copy would allow for further

prenumbered, making it difficult to

reconciliation on the documents so that

account for all the paper work.

everything that was ordered was received. Again, this company has too much reliance on the supplier that what they are sending is accurate and complete.

Access Controls





The company needs to limit the access



Mr. Simpson in the Inventory

employees have to the areas where

Department has access to the inventory

materials and products are stored.

records as well as access to the actual

Allowing the work centers access to

inventory. With this “power” it would

unlimited inventory by allowing them

be easy for Mr. Simpson to commit

to request inventory at their discretion

fraud against the company.

exhibits a problem with access control.