The inventory of Molly Company, a wholesaler of soft-goods, is composed of approximately 3,500 different items. The company employs a computerized batch processing system to maintain its perpetual inventory records. The system is run each weekend so that the inventory reports are available on Monday morning for management use. The system has been functioning satisfactorily for the past 15 months, 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 inventories to meet customer demand. When an item of inventory falls below a predetermined level, a record of the inventory item is written. This record is used in conjunction with the vendor file to prepare the purchase orders. Exception reports are prepared during updating of the inventory and preparation of the purchase orders. These reports identify 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 combined with the weekend results. Figure presents a system flowchart of the inventory and purchase order procedure.

a. The illustrated system flowchart of Molly’s inventory and purchase order system was prepared before the system was fully operational. Several steps that are important to successful operation of the system were omitted inadvertently from the chart. Now that the system is operating effectively, management wants the system documentation complete and would like the flowchart corrected. Describe steps that have been omitted, and indicate where the omissions have occurred. The flowchart does not need to be drawn.
b. In order for Molly Company’s inventory purchase order system to function properly, control procedures would be included in the system. Describe the type of control procedures Molly Company would use in its system to ensure proper functioning, and indicate where these procedures would be placed in thesystem.

  • CreatedFebruary 26, 2015
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