ACCOUNTING-Last year the Diamond Manufacturing Company purchased

QUESTION

There is one assignments due this week (worth 35 points)
as follows.
·
Problem 13.10 (page 408) Diamond Manufacturing Company.

·
Answer requirements a, b, and c at the end of the problem
in one to two pages.

13.10.
Last
year the Diamond Manufacturing Company purchased over $10 million worth of
office 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 department. Upon receiving a purchase requisition, one
of the five purchasing agents (buyers) verifies that the requester is indeed a
department head. The buyer next selects 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). (CPA
Examination, adapted)
·
d. Draw a BPMN diagram that depicts Diamond’s
reengineered expenditure cycle.

ANSWER:

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