The Magic Rock Company of Houston, Texas, is implementing a computer- based inventory control system. The system will use a sequentially organized inventory master file and a transaction file. Transactions will be batched and processed at the end of each day. A description of the file structures and transaction processing logic follows.

Inventory Master File:

This file contains fixed- length records. The file has a header label. The header label contains three fields:

Field 1 ...…..................................................................              File identification number

Field 2 ….................................................       Record count (number of records in the file)

Field 3 …..................................................................................             Last posting date

The following data elements are in the detail inventory records:

Field 1 ….......................................................................          Product number

Field 2 ….......................................................................         Quantity on hand

Field 3 …...............................................................................   Unit cost

Field 4 ….....................................................................                Reorder point

Field 5 …....................................................    Quantity on order from vendor

Field 6 …....................................................................            Reorder quantity

Field 7 …............................................................          Current shipping rate

Field 8 …..................................................................... Current return rate

Transaction File

The transaction file has a header label. The header label contains two fields:

Field 1 ….................................................       Hash total of field 3 of the transaction file

Field 2 …...............................................................................  Current processing date

There are four different types of detail transaction records. Each transaction record has five fields, but all five fields are not used for every transaction type. Field 1 of each transaction record is a code that indicates the type of transaction.

Transaction Code 1: Delivery from the Vendor

Field 1 …...................................................     Transaction code

Field 2 …....................................................    Product number

Field 3 …........................................................            Quantity

Field 4 …...................................................     Vendor number

Field 5 …........................................................            Not used

Each delivery- from- vendor transaction causes an increase in the quantity- on- hand field in the associated inventory record and a reduction in the quantity- on- order- from- vendor field.

Transaction Code 2: Inventory Status Check

Field 1 ….................................................       Transaction code

Field 2 ….................................................       Product number

Field 3 …........................................................            Quantity

Field 4 …........................................................            Not used

Field 5 ….........................................................           Not used

Each inventory status check transaction initiates a comparison of the actual quantity on hand and that which is recorded in the related inventory record. If a discrepancy is found, the inventory master record is changed to agree with the physical count quantity indicated on the transaction record.

Transaction Code 3: Customer Order

Field 1 …....................................................        Transaction code

Field 2 …....................................................       Product number

Field 3 ...….......................................................             Quantity

Field 4 …....................................................       Customer number

Field 5 …....................................................    Salesperson number

Each customer order transaction causes a check of the quantity on hand for the ordered product. If sufficient goods are on hand, a shipment notice is output, and the quantity- on- hand field is reduced in the associated inventory record. If insufficient product is on hand, a shipment notice is made for the amount of product available and the quantity- on- hand field is reduced by this amount. A notice is then output indicating the quantity still on order by the customer. The amount of the product ordered by the customer but not yet shipped ( possibly zero) is then subtracted from the sum of the updated quantity- on- hand field plus the updated quantity- on- order- from- vendor field. If this result is less than the reorder- point field, a purchase notice is output for the product. The purchase amount is the reorder quantity field. The current shipment- rate field is then recalculated for each actual shipment made. The update formula is

New value = 0.99 × old value × 0.01 × shipment amount

The return- rate field also must be updated. The update formula is

New value = 0.99 × old value

This inventory reorder policy is reasonably simple and effective. These formulas calculate an average shipment and return rate using a form of exponential smoothing.

Transaction Code 4: Sales return

Field 1 …...................................................      Transaction code

Field 2 …...................................................      Product number

Field 3 …...................................................      Quantity

Field 4 …...................................................     Customer number

Field 5 …...................................................      Not used

Each sales return transaction causes an update of the quantity-on- hand field in the associated inventory record and also causes an update of the return- rate field. The updated formula is

New value = old value × 0.01 × return

The transaction file will be sorted into ascending sequence on product number prior to processing against the inventory master file. Output from the processing run will include an updated master inventory file and a printed transaction register.

Required

a. Identify data edits and application- processing controls that you would recommend be included in this system.

b. From a control viewpoint, do you see any significant differences among the fields of data contained in the master inventory file? Explain your answer.