KULASA COMPANY

KULASAis one of the leadingshoe manufacturing companywhich is based in the shoe capital cityofNCR, Marikina City.Although,itcatersto all shoes both for men and women,its core business is for ladies'shoes.The companyhas been in the business for almost a decade now anditsrootscan be tracedtoa backyard operation in the house ofitsowner,MrsNicholas, a fashion icon herself.It startedwithjust5 personnel under its employ.Designs of the shoes is mostly donebyMrsNicholas whicharemore appropriate for the working class.Gradually,thecompanyhas been gainingpopularitydue to the beautifuldesign of the shoes.The companystarted with one store but over the years,it put stores in other partsofMarikina City, until itstartedselling its products in big mallsin NCR.Due tothe growthofthe companyina fast phase, and to be able toincrease the much neededadditional capital to finance its growth,KULASAtransitioned from aproprietorship to a corporation.Thecompanydid not have difficulty attractinginvestorsas the KULASA brandhas been gaining popularity among theworkingclass andhas already established a market niche.

Mrs.Nicholas,continueto be in full charge in designing the shoes.Competition in themarkethas becomingverytoughasnewcompetitorsemerge.However, MrsNicholasisveryconfidentthatherbrandwill survive the competition and stick to its old design with little improvements.During the recent past twoyears,thefinancial performanceofthecompany's selected accountsare as follows:

2019

2020

Sales

10,000,000

5,000,000

Cost of Sales

6,000,000

3,250,000

Gross Profit

4,000,000

1,750,000

Operating Expenses

2,400,000

612,500

Net Profit

1,600,000

1,137,500

Accounts Receivable

4,000,000

6,000,000

Inventory (RM and FG)

3,000,000

5,000,000

The deterioratingfinancial performance of the companyis partlyduetothe pandemic which crippled most of the businesses.However, even prior to pandemic,the company has been experiencingpoor financialperformance.Increase in competitiondue to emergenceof new fashion shoeshas been hurting the company's salesperformance, eventually itsbottom line.Managementis completely aware of thisbutdid not put any safety nets to averttheeffect of slowly declining sales as they are confident thatthey will bounce back once the pandemic is over.MrsNicholasisadamantinchanging the design of itsshoes despite the stiff competitionasshe is confidentthat it has already establish a market niche for this.

Some of theinternal processesofthecompany are as follows:

SALES AND MARKETING

Customers' orders are received by sales clerkandis encoded in a Customer Order Form (COF) taking note of the description and quantity.The COF is then forwarded towarehousefor checking the availability and preparation of the goodsbeing ordered.Once theavailability of the order is confirmed, the salesstaff calls back the customer informing the latter of the expected delivery date.

WAREHOUSE

Warehouse staffpreparesthegoods based on theCOF forwarded by the Sales and Marketing.The warehouse staff coordinates withthe Logistics Dept for the delivery schedule.Warehousereplenish raw materialson a monthly basisbased on the actualissuance duringthe month.Basedon theactualissuance,he preparesa Purchase Requisition and forwards it to Purchasing Departmentfor procurement.

CREDITAND COLLECTION

Due to pandemic, therehas been slow in collections as customersare having financialdifficulty.70%oftheaccountsreceivable are alreadypastdue.Howeverprior to pandemic,past due accountsare alreadyfiling updue topoorcreditratingsofsome of itscustomers.Thecompanygrants creditlineto a customerendorsed by thehead of the sales and marketingdepartment.

Required:

As an operation auditor,evaluatetheoverall performance of the company, taking notes ofsome loopholes on its processes.What do you think should the company do to improve its financial performance.