Cheesy Deli Co-op Case Study: ERD and Control Analysis

QUESTION 1 [13 Marks] The Cheesy Deli Co-op sells cheese via their website direct to public, shipping from their warehouses located in Sydney, Melbourne, and Adelaide. The cheeses they offer are supplied from cheesemakers ranging from hobbyist to medium-sized dairies, who may not have their own distribution networks. In order to help customers keep track of which cheeses they enjoyed, and may wish to purchase again, The Cheesy Deli’s customers can give a rating from 1 to 5 stars for each cheese they have purchased. All sell prices and purchase costs are on a per unit basis. Required: Answer the following questions with reference to the narrative above and the ERD extract below. QUESTION 1.1 [2 marks] Two fields of the Rating entity are missing; what should they be? Explain with reference to the diagram.

QUESTION 1.2 [4 marks] The ERD is only a partial extract of the full database. Propose one other entity that could also have been included in the ERD? What would be the role of this entity (the kind of information stored)? What would the cardinality between this entity and the entity (or entities) it is related to in the ERD be (please state direction of cardinality) and why? QUESTION 1.3 [3 marks] The purchasing manager of The Cheesy Deli is reviewing which cheeses to purchase for the upcoming period. Which entities and fields from the ERD might they find useful in determining which cheeses and in what quantities to purchase? (3 marks) QUESTION 1.4 [4 marks] To encourage sales, warehouse manager suggests that The Cheesy Deli should provide a discount to specific batches of cheese. Is this possible? Explain why with reference to the ER Diagram.

QUESTION 2 [12 Marks] All questions below are based on the following information (do NOT make any assumptions about other accounts or processes): Lorenz is a ‘passive’ owner of Dodgy Ltd. (“Dodgy”) (i.e., he owns the company as an investment but is not actively involved in managing operations). Dodgy sells 10 completely different products, each coming in only 1 size, 1 color. The table below summarizes relevant financial and operational information for fiscal year 2022: Account Amount Composition Method Sales Revenue 2,000,000 100,000 individual sales transactions Online sales Despite selling goods only online, customers DO NOT prepay. All customers receive an invoice along with their goods (i.e., invoice attached to package) and have 14 days to deposit their payment into Dodgy’s bank account (account details provided on invoice). The ‘sales order to receiving payment’ process involves only three (3) staff members, all performing various tasks as needed. Staff divide the individual tasks among themselves thus sharing roles from picking and packing to shipping goods to customers and recording related transactions (shipping records, updating inventory records, etc.). The entire sales process requires relatively few process steps, is highly standardized, and overseen by a general manager. Turnover among the three staff members is high. Question 2.1 [6 Marks] What type of control during the GL&FR cycle would provide Lorenz with the greatest comfort making the occurrence assertion with respect to sales data ? Specify the ‘type’ in terms of the intent of the control, the frequency with which the control is to be executed, and the operations of the control. Note: the question asks about how to categorize the type of control, NOT to be explicit about what specific control you recommend. Justify your classification. [6 Marks] Question 2.2 [3 Marks] Lorenz recently read about the COSO framework and is now wondering if he can clearly conclude – solely based on the information about Dodgy provided above – that an important control activity may be violated by the company. (a) Which control activity, if any, is likely being violated in daily operations. (b) Justify your answer and (c) address mitigating factors. [3 Marks]

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Question 2.4 [3 Marks] Explain why taking a functional perspective of Dodgy to come up with adequate employee performance assessment measures (i.e., KPIs that motivate high performance) would be problematic. [3Marks]

Question 3 [12 Marks] Manufacturoo Ltd produces widgets. Management recently decided to switch to a new supplier from which to buy raw materials. The new supplier offers equal quality raw materials and exactly equal prices as the old supplier. Neither the old nor the new supplier charge anything for shipping. Unfortunately, management failed to update their purchasing system to account for the following two changes: CHANGE #1: Minimum order quantity to receive a 10% discount is 900 units for Raw Material A (used to be 500 for old supplier). Manufacturoo Ltd usually purchases between 400 and 1100 units of Raw Material A per month. Raw Material A does not spoil or become obsolete. Would this be considered a systematic or random error? Explain why. [3] How could this data problem affect reports generated during the GL&FR cycle, including the information quality of the financial statements? [3] CHANGE #2: While prices per unit of Raw Material B are the same as those charged by the old supplier, Raw Material B is packaged differently: it comes in boxes containing one hundred (100) units as opposed to fifty (50) units (old supplier). Manufacturoo Ltd’s purchasing system automatically generates a purchase requisition for 30 boxes once the reorder point of 5 boxes has been reached. Raw Material B does not spoil or become obsolete but is expensive to store – due to its large size. How could this data problem, if not detected, affect the performance of the purchasing cycle if the purchase requisition is automatically converted to a purchase order and sent to the supplier? In your answer discuss the implications on financial and managerial reports and related information quality goals. [6]

QUESTION 4 [7 marks] QUESTION 4.1 [3 marks] Explain how the use of an ERP System (e.g., SAP) reduces the need for accountants to enter General Journal Entries and briefly discuss the associated impact on information quality. Use an example from the GBI case to support your answer. Question 4.2 [4 Marks] DEF Ltd is a chocolate manufacturing company, producing high-end unique chocolates. DEF Ltd is looking into implementing RPA into its SAP system around managing business partners, in particular, vendor selection vs. adjusting customer credit limits. It is asking for your opinion whether it should be done on the customer side or the vendor side. DEF Ltd only has the budget to introduce the bot into one process at this stage. In introducing the bot, DEF Ltd is looking at freeing up its staff time. Discuss which process should be selected and why. Include in your discussion, why the other process should not be selected. (4 marks)

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QUESTION 5 [16 Marks] Corporate Cadence (CC) Pty Ltd is a corporate gifts company based in Sydney, Australia. CC provides branded merchandise for its clients. CC is known for having good supplier relationships and is able to always receive discounts for prompt payment. Goods supplied are generally of suitable quality; however, with the nature of the business, CC often liaises with different suppliers to meet client specifications. CC’s Purchase Manager is responsible for liaising with the suppliers and creating Purchase Orders. The management of CC has noticed that the company has an excessive cash outflow with no significant changes in expenses/inventory. REQUIRED: Based on the narrative and the following flowchart, answer the following questions.

QUESTION 5.1 [2 marks] Why would there be a tolerance level allowed between Purchase Order and Invoice? Explain your answer. QUESTION 5.2 [14 marks] 1. In regard to the EXCESSIVE CASH OUTFLOW: a) Identify and describe ONE weakness in the process that could cause this. Identify and describe two risks that may materialise as a result of this weakness. Your answer should discuss how the weakness identified could impact the process/information quality goals. Discuss any impact on the financial statements. (7 marks) b) What additional controls, or changes to the process, could management implement to reduce the excessive cash outflow issue? Explain how the control(s) minimise(s) the weakness identified. (3 marks) c) Identify ONE performance measure (i.e., KPI) that could be used to evaluate the improvements after the introduction of the control (or process change) that you recommended in (b) (1 mark) d) Describe how the performance measure (KPI) selected in (c) above would be calculated (including what the target would be). Your answer should include what data is needed and where it would come from (3 marks)

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