Chp 7 C1

PERFORMANCE WATER PUMPS

(CENTRALIZED SYSTEM WITH DISTRIBUTED TERMINALS)

Performance Water Pumps (PWP) is a leading manufacturer of water pumps with high capacity capability. These pumps are used in both civil and private disaster situations. PWP's primary market is disaster recovery companies that assist home owners following basement flooding. They also sell to building contractors, municipalities, and rental companies. The company publishes an industry catalog of pumps and other auxiliary equipment, which is distributed to customers and prospective customers. PWPs headquarters and manufacturing facilities are in Leesville, Louisiana where they employee 125 manufacturing and clerical staff.

PWP employs a centralized computer system with distributed terminals in the departments. Recently they have been experiencing manufacturing problems and cost overruns. PSP has hired your auditing firm to assess its operations and internal control procedures.

Conversion Cycle

The current batch production process is initiated from a marketing forecast of expected sales for the quarter. The production planning and control clerk uses this to create a digital Production Schedule of the various batches to be produced during the quarter. From this schedule, the system automatically prepares weekly the digital work orders to be used by the production department.

The production department supervisor accesses the work orders from his terminal and prepares the necessary hard-copy move tickets and materials requisitions.

The move tickets and two copies of the purchase requisitions are distributed to each work center in the production process. Employees submit the two copies of the material requisitions to storekeeping in exchange for materials and sub-assemblies. If additional raw mate1ials are needed beyond the standard quantity, the supervisor issues additional material requisitions. Work center employees record their labor time for each batch on hard-copy job cards, which they send to cost accounting. As the production is completed in each work center, the move ticket is submitted to cost accounting. Finally, upon completion of the batch, the supervisor closes the open work order file.

The storekeeping manager files one copy of the material requisition and updates the raw materials inventory file from the computer in his once. The manager then sends the second copy of the material requisition to cost accounting. At the end of the day, the manager prepares a digital journal voucher and posts it to the general ledger control accounts.

The cost accounting clerk accesses the digital work orders and sets up a WIP account for the batch. Throughout the production period, the clerk also receives move tickets, job tickets, and materials requisitions, which she uses to post to WIP. At the end of each day the cost accounting clerk prepares a digital journal voucher and posts to GL control accounts to reflect the status of WIP and to record transfers of WIP to finished good inventory.

Required

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

b. Create a system flowchart of the existing system.

c. What risks exist in the system as it is currently designed?

d. Describe the changes needed to reduce the risks.