IPC+Exam+-+S1+2023+-+Solutions
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School
University of Melbourne *
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Course
90030
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
Pages
10
Uploaded by CaptainHeatSalamander17
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.
Cheese ID
(0.5)
Customer ID
(0.5)
We need the two FK to implement the many to many
(1)
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?
Entity
: Cheesemaker
(1)
Role
: This is effectively the supplier and would record the usual info (address etc.)
(1)
Relationship
: one-to-many from Cheesemaker to Cheese; or many-to-one from Cheese to
Cheesemaker
(1).
Cheesemaker ID is already found in the Cheese table, which indicates the
relationship must by 1:N (If we wanted it to be N:N Cheesemaker ID would need to be in a separate
associative entity along with Cheese ID)
(1)
Alt explanation:
This is because one cheesemaker can make many types of cheeses, but each
cheese could only be made by one cheesemaker
(1)
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)
Cheese (Cheese ID) to identify the cheese
(0.5)
Batch (Quantity on Hand, Quantity Reserved) for available stock
(1)
Order Line (Quantity) for historical demand
(0.5)
Rating (Stars) to consider ordering less of items with low ratings and more of items with high
ratings
(1)
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.
No
(1
–
only if explained
)
This is because there is nowhere on the ERD to record discounts
(1)
therefore only selling price can
be adjusted to achieve this
(1)
.
Furthermore, the selling price is cheese (not batch) specific
–
making it impossible to provide
discount on specific batches of cheese
(1)
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]
A detective
(1)
control executed periodically
(1)
and (fully) automated
(1)
.
•
Detective control as the control would be applied to a large number
(1)
of transactions.
•
Periodic to match the reporting activities/schedules within the GL&FR cycle
(1)
•
Automated given the large number of transactions (and/or: little judgment required (i.e.,
shipped or not) (can talk about efficiency / consistency needed)
(1)
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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Segregation of duties
(1)
Only 3 staff are involved in the entire sales process. Hence, a single employee may handle
inventory (custody) and also perform related record-keeping activities
(1)
Activities are overseen by the general manager (or: few employees, so oversight by manager
should be easy)
(1)
.
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]
Employees rotate – i.e., work in different departments
(1)
. Functional perspective focuses on what
is done by each function
(1)
. Dodgy employs ‘generalists’
(1)
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]
Systematic error
(1)
since it affects the price of all purchases of 500(1)-899 units
(1)
.
How could this data problem affect reports generated during the GL&FR cycle, including the
information quality of the financial statements?
[3]
Budgets
(1)
may understate cash outflow
(1)
. However, there is no impact on the information
quality of the financial statements
(1)
.
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]
From an operational perspective, the company would initially over-purchase
(1)
Raw Material B
leading to excessive storage costs
(1)
. Budgets would understate
(1)
cash outflow
(1)
and projected
inventory storage costs
(1)
. There is no impact on the financial statements with respect to
information quality goals
(1)
.
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.
While there are occasional journal entries required – due to the linkage between the process and
recording, journal entries are automated
(1)
Example: In Step 10, when payments are posted, journal entries are automatically recorded
(1)
VAC: completeness (all entries are recorded) and accuracy (recorded as it occurs), and potentially
validity (no additional random entries)
(1)
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)
It should be for the adjusting customer credit limit
(1 mark - only if explained)
Vendor selection process could be problematic because judgment need to be made around quality
(1)
With customer credit limit, this is under the assumption that the business has existing data around
customer credit/payment history
(1)
that can be used to build an algorithm/rule on how the bot
will determine credit limit
(1)
Alternatively: there could be an argument that neither should be introduced as there are
judgments involved with both processes (i.e. customer credit limit – some adjustments are not
only based on internal data and not only based on straightforward rules).
If a reasonable argument for vendor selection is provided – mark accordingly.
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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.
Such a tolerance level would be allowed because between the time the Purchase Order is sent to
the vendor and when the Invoice is received, there could be minor price/item adjustment to the
goods ordered
(1)
With minor price/item adjustments captured by the tolerance level, this will ensure a more
efficient processing of the invoices as only those differences that are above the tolerance level will
be investigated (cost-benefit analysis)
(1)
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)
Weakness: The Purchasing Manager is in charge of liaising with supplier, creating PO and
even approving invoices
(1)
The payments of the invoices are only matched to the PO,
which may not even have a corresponding GR report
(1)
.
As such, it could be possible that a payment is approved without receiving any of the items
(1)
. Furthermore, it also makes it easy for the Purchasing Manager to commit fraud in the
process
(1)
.
This impacts validity
(1)
as CC some payments are not properly authorised and may also
pay for goods not received
(1)
. No misstatement on the FS as cash equal to payment
(1)
.
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)
Purchase manager should be required to match invoices with the GR
(1)
to ensure that all
items are received prior to payment
(1)
.
Payment should be made by someone other than the purchase manager
(1)
.
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)
Number of invoices paid without a corresponding GR report
(1)
.
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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)
Calculation = count number of invoices paid without corresponding GR
(1)
This would come from the Invoices and GR datastore
(1)
; Target = zero
(1)