1.

ECONOMIC ORDER QUANTITY Out Camping is a manufacturer of supplies and has

several divisions, one of which is the tent division that produces the deluxe tent Away
From Home. Fourteen thousand of these tents are made each year. This model of tent
incorporates two zipping doors in each model. Zippers for these doors are purchased from
Zippy Zippers. Out Camping began this year with 500 zippers in inventory, but is now
adopting an economic order quantity approach to inventory. A review of last year’s
records reveals the following information concerning each order placed with Zippy
Zippers: variable labor— $12; variable supplies—$1; fixed computer costs—$4; fixed
office expenses—$2; fixed mailing expenses— $2; and fixed supplies—$1. No
differences are expected this year. Last year, the cost of carrying one zipper in inventory
for the entire year was $1, but Out Camping has recently negotiated a new lease on its
warehouse, and the cost of carrying each zipper is now expected to increase by 25 cents.
Out Camping also found that it took 7 days from the time an order was sent to Zippy until
the zippers were received.

Required
a. Compute economic order quantity.
b. Compute reorder point. Presume Out Camping has a desire to reduce its ending
inventory to one-half of this year’s beginning amount and that the company produces the
Away From Home model 140 days each year
2. Diagram the sequence in which the following source documents are prepared.
a. bill of materials
b. work order
c. sales forecast
d. materials requisition
e. move ticket
f. production schedule
g. route sheet

3. Playthings, a toy manufacturer specializing in toys for toddlers, is considering switching to

a JIT manufacturing process. The CEO has been talking with the production consultants, who
tell her that a new philosophy must be embraced: If a defective part of an outof-control
process is detected, no more units should be made until the process is corrected. The
consultants estimate that the production process may occasionally be shut down anywhere
from 30 minutes to 7 hours. Discuss the advantages and disadvantages of such a system.

4. General Manufacturing Inc.— Internal Controls Assessment The production process at

General Manufacturing Inc. involves the planning, scheduling, and controlling of the physical
products through the manufacturing process. General’s manufacturing process begins in the
production planning and control department, where June determines the materials and
operations requirements and combines information from various departments to assess
inventory requirements needed to produce a product. Marketing provides the sales forecast,
engineering provides the engineering specifications, and the storeroom provides the raw
material inventory status. June reviews this information to prepare a purchase requisition
document, which she sends to purchasing. June then reviews the bill of materials and route
sheets and prepares the following documents: work orders, move tickets, and materials
requisitions. Three copies of each document are prepared. One copy of the work order, move
ticket, and materials requisitions document is sent to cost accounting. The remaining two
copies are sent to Mike, the supervisor in the work center. Once Mike receives the production
control documents, he initiates the production process. Mike sends a copy of the materials
requisitions to the inventory storeroom in exchange for necessary raw material. When
additional raw material is needed for a job in process, they are obtained by calling Steve, the
storeroom clerk. Materials in excess of those needed for production are kept in the work
center and used in the future. When the job passes through all production stages and is
complete, Mike sends the finished product to the finished goods warehouse. He files one copy
each of the work order, move ticket, and materials requisition and sends the remaining copies
of the work order and move ticket to the cost accounting department. One of Mike’s duties is
to review the job tickets and the employee timecards, which are sent to cost accounting and
payroll, respectively. Steve, in the inventory storeroom, accepts materials requisitions from
the work center employees and releases the raw material to the work centers. Steve files a
copy of the materials requisitions and updates the raw material inventory records. At the end
of the day he creates a journal voucher that is sent to Ronica in the cost accounting
department. Ronica receives the following documents: work orders, move tickets, and
materials requisitions from the production planning department; job tickets, work orders, and
 move tickets from the work center; and journal vouchers from the inventory storeroom.
Ronica uses these to initiate a work-in-process account and to update the work-in-process as
work progresses, to calculate variances, and to update the general ledger accounts. Ronica
files all documents in the department.

Required

a. Create a data flow diagram of the current system.

b. Create a system flowchart of the existing system.

c. Analyze the internal control weaknesses in the system. Model your response according to the
six categories of physical control activities specified in the SAS 78/COSO control model.

d. Prepare a system flowchart of a redesigned computer-based system that resolves the control
weaknesses you identified. Explain your solution.