Last year the Diamond Manufacturing Company purchased over $10 million worth of of- fice equipment under its “special ordering” system, with individual orders ranging from $5,000 to $30,000. Special orders are for low-volume items that have been included in a department manager’s budget. The budget, which limits the types and dollar amounts of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors. The special ordering system functions as follows. Purchasing A purchase requisition form is prepared and sent to the purchasing de- partment. Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester is indeed a department head. The buyer next se- lects the appropriate supplier by searching the various catalogs on file. The buyer then phones the supplier, requests a price quote, and places a verbal order. A prenumbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving, and accounts payable. One copy is also filed in the open requisition file. When the receiving department verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders. Receiving The receiving department gets a copy of each purchase order. When equipment is received, that copy of the purchase order is stamped with the date, and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink. The receiving clerk then forwards the stamped purchase order and equipment to the requisitioning department head and verbally notifies the purchasing department that the goods were received. Accounts Payable Upon receipt of a purchase order, the accounts payable clerk files it in the open purchase order file. When a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning department’s equipment account. Unpaid invoices are filed by due date. On the due date, a check is prepared and forwarded to the treasurer for signature. The invoice and purchase order are then filed by purchase order number in the paid-invoice file. Treasurer Checks received daily from the accounts payable department are sorted into two groups: those over and those under $10,000. Checks for less than $10,000 are machine signed. The cashier maintains the check signature machine’s key and signature plate and monitors its use. Both the cashier and the treasurer sign all checks over $10,000. REQUIRED a. Describe the weaknesses relating to purchases and payments of “special orders” by the Diamond Manufacturing Company. b. Recommend control procedures that must be added to overcome weaknesses identified in part a. c. Describe how the control procedures you recommended in part b should be modified if Diamond reengineered its expenditure cycle activities to make maximum use of current IT (e.g., EDI, EFT, bar-code scanning, and electronic forms in place of paper documents). d. Draw a BPMN diagram that depicts Diamond’s reengineered expenditure cy
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Last year the Diamond Manufacturing Company purchased over $10 million worth of of- fice equipment under its “special ordering” system, with individual orders ranging from $5,000 to $30,000. Special orders are for low-volume items that have been included in a department manager’s budget. The budget, which limits the types and dollar amounts of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors. The special ordering system functions as follows.
Purchasing A purchase requisition form is prepared and sent to the purchasing de- partment. Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester is indeed a department head. The buyer next se- lects the appropriate supplier by searching the various catalogs on file. The buyer then phones the supplier, requests a price quote, and places a verbal order. A prenumbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving, and accounts payable. One copy is also filed in the open requisition file. When the receiving department verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders.
Receiving The receiving department gets a copy of each purchase order. When equipment is received, that copy of the purchase order is stamped with the date, and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink. The receiving clerk then forwards the stamped purchase order and equipment to the requisitioning department head and verbally notifies the purchasing department that the goods were received.
Accounts Payable Upon receipt of a purchase order, the accounts payable clerk files it in the open purchase order file. When a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning department’s equipment account. Unpaid invoices are filed by due date. On the due date, a check is prepared and forwarded to the treasurer for signature. The invoice and purchase order are then filed by purchase order number in the paid-invoice file.
Treasurer Checks received daily from the accounts payable department are sorted into two groups: those over and those under $10,000. Checks for less than $10,000 are machine signed. The cashier maintains the check signature machine’s key and signature plate and monitors its use. Both the cashier and the treasurer sign all checks over $10,000.
REQUIRED
a. Describe the weaknesses relating to purchases and payments of “special orders” by the Diamond Manufacturing Company.
b. Recommend control procedures that must be added to overcome weaknesses identified in part a.
c. Describe how the control procedures you recommended in part b should be modified if Diamond reengineered its expenditure cycle activities to make maximum use of current IT (e.g., EDI, EFT, bar-code scanning, and electronic forms in place of paper documents).
d. Draw a BPMN diagram that depicts Diamond’s reengineered expenditure cycle.
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Last year the Diamond Manufacturing Company purchased over $10 million worth of of- fice equipment under its “special ordering” system, with individual orders ranging from $5,000 to $30,000. Special orders are for low-volume items that have been included in a department manager’s budget. The budget, which limits the types and dollar amounts of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors. The special ordering system functions as follows. c. Describe how the control procedures you recommended in part b should be modified if Diamond reengineered its expenditure cycle activities to make maximum use of current IT (e.g., EDI, EFT, bar-code scanning, and electronic forms in place of paper documents).
d. Draw a BPMN diagram that depicts Diamond’s reengineered expenditure cycle.
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