Peacock Company is a wholesaler of soft goods. The inventory is composed of approximately 3500 different items. The company employs a computerized batch processing system to maintain its perpetual inventory records. The system is run each weekend so that inventory reports are available on Monday morning for management use. The system has been functioning satisfactorily for the past 10 years, providing the company with accurate records and timely reports.
The preparation of purchase orders has been automatic as a part of the inventory system to ensure that the company will maintain enough inventory to meet customer demand. When an item of inventory falls below a predetermined level, a record of the inventory items is written. This record is used in conjunction with the vendor file to prepare the purchase orders.
Exception reports are prepared during the update of the inventory and the preparation of the purchase orders. These reports list any errors or exceptions identified during the processing. In addition, the system provides for management approval of all purchase orders exceeding a specified amount. Any exceptions or items requiring management approval are handled by supplemental runs on Monday morning and are combined with the weekend results. A system flowchart of Peacock Company’s inventory and purchase order procedure is in Exhibit DC12-10.

a. The illustrated system flowchart (see Exhibit DC12-10) of Peacock Company’s inventory and purchase order system was prepared, but several steps that are important to the successful operations of the system are omitted from the chart. Describe the steps that have been omitted and indicate where the omissions have occurred. The flowchart does not need to be redrawn.
b. In order for Peacock’s inventory/purchase order system to function properly, control procedures should be included in the system. Describe the type of control procedures Peacock Company should use in its system to ensure proper functioning, and indicate where these procedures would be placed in thesystem.

  • CreatedJanuary 09, 2015
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