Accounting Information Systems, 8e 1
SOLUTIONS FOR CHAPTER 10
Discussion Questions
DQ10-1Among the three functional entities (marketing, finance, and logistics) shown in Figure 10.1, what goal conflicts could exist and how might this effect the results of the OE/S process?
ANS.Some potential incongruences in goal orientation not already discussed in the chapter include the following:
a.Marketing vs. Logistics:
1)The sales order department wants to speed delivery. Shipping is pressured to hurry the shipment of orders at the potential expense of accurate processing of those shipments.
2)The warehouse makes the decision to ship substitute goods without consulting the sales order department. Such a situation could result in customer dissatisfaction and inaccurate inventory records if the recording of the shipment is for the ordered goods and not the substituted goods.
3)Because of overly optimistic sales projections by marketing personnel, excessive quantities of goods are produced or purchased. These goods are not stored in the warehouse in the most efficient manner.
4)Marketing may plan promotions without giving warehouse and shipping managers sufficient time to schedule additional personnel need to handle the increased sales volume.
b.Marketing vs. Finance:
1)Goods are shipped even though the quality of those goods may be substandard. Sales returns and allowances are exacerbated as a result. Processing these returns is costly.
2)Marketing changes its compensation of field salesmen from straight commission to a combination of salary plus commission. Selling expenses increase, but there is no commensurate improvement in sales volume.
3)So that customer requests can be easily satisfied, marketing prefers that a large quantity and variety of merchandise be on hand in the warehouse. The cost of handling and storing these goods is excessive.
c.Finance vs. Logistics:
1)Warehousing prepares a capital budget request for new materials handling equipment (and/or personnel) that can improve the efficiency of warehouse operations. Finance rejects the request because it fails the tests of maximum payback period and internal rate of return.
2)The warehouse makes the decision to ship substitute goods, without consulting sales order processing (see answer a., part 2). Such a situation could result in abnormal sales returns.
DQ10-2The chapter presented a brief example of how the OE/S process might or might not support the decision-making needs of marketing managers. For each of the functional positions shown in the organization chart in Figure 10.2, speculate about the kinds of information each might need to support decision-making and indicate whether the typical OE/S process would provide that information. Be specific.
Note: The chapter suggests four questions, which might be asked by marketing managers:
1.Where is sales volume (quantity and dollars) concentrated?
2.Who are the specific major customers (by sales and profitability), both present and potential?
3.What opportunities exist to sell after-sales services, to cross-sell (offer related products), and to up-sell (offer higher-priced products)?
4.What kinds of advertising and promotions have the greatest influence on customers?
ANS.
Questions Being Asked / OE/S Process’s Capability to AnswerManager, advertising
•Where are our existing customers located? / •The customer record should indicate the geographic location of each customer.
•Where are our potential customers located? / •Research must be conducted to determine this.
•Which existing customers might respond positively to an advertising campaign? / •An analysis of sales data might reveal this.
•Was an advertising campaign effective? / •An analysis of sales data should reveal this.
Manager, new product development
•What products are being requested by our customers? / •The OE/S can collect data about sales of existing products to our customers. It could collect data about requests for products that are not presently being sold.
•What complaints are being lodged about our existing products? / •The OE/S process can collect such data.
•What environmental factors must be considered in developing new products? / •This information would not be available through the OE/S and must be collected from government agencies and other sources.
Manager, customer sales and service
•When is the peak demand for sales order entry clerks? In which sales locations do peak demands occur? / •The OE/S can collect such data. Many fast-food chains, for example, collect data about sales by the hour and use this information to schedule employees.
•What call activity is required both for the protection of present volume and development of new business? / •OE/S historical reports and market forecasts.
•What customer services are provided by our competitors? / •Research must be conducted to determine this.
Manager, marketing intelligence
•What distribution channels are available? What distribution channels are being used by our competitors? / •Research must be conducted to determine this.
•What are the major advantages and disadvantages of current products relative to our competitors? / •Research must be conducted to determine this.
Manager, sales promotion
•What are our present product costs? What are our expected margins? / •This data is available from the cost accounting and budgeting processes.
•What products have responded well to promotions in the past? / •Sales reports come from the OE/S.
•What can we give away with our product? / •Research must be conducted to determine this.
DQ10-3Explain how and where the control goals for effectiveness of operations would be shown in the control goal columns of a control matrix prepared for the OE/S process. At a minimum, include the following topics from Chapter 7 in your discussion:
a.Differentiate between control goals for the operations process and control goals for the information process.
ANS.Goals for the order entry/sales operations process would be included under the heading “Control goals of the operation process” on the left side of the control matrix under the subheading “ensure effectiveness of operations.” The information process control goals would be included on the right side of the control matrix and address the issues of validity, completeness and accuracy of sales order and shipping notice inputs, and completeness and accuracy of updates to the sales order master data.
b.Distinguish between effectiveness and efficiency, and between effectiveness and security of process resources.
ANS.Operations process control goals include the following:
- Achieving effectiveness of operations by accomplishing goals for the operations process. For example, we want the OE/S to provide certain minimum levels of customer support.
- Accomplishing the effectiveness goals with a minimum of resource use. Resources include personnel, computers, material handling equipment, and so on.
- Giving adequate protection to the major resources used in this process. For example, the process must minimize misappropriation of customer master data and inventory.
DQ10-4“A control plan that helps to attain operational effectiveness by ‘providing assurance of credit worthiness of customers’ also helps to achieve the information process control goal of sales order input validity.” Do you agree? Discuss fully.
ANS.One measure of the validity of sales order inputs is the likelihood that the customer will be able to pay for the goods being ordered. So, if we check the customer’s credit, we will determine the customer’s credit worthiness—and accomplish an operations process goal—and help ensure the validity of the sales order.
DQ10-5Examine the systems flowchart in Figure 10.11. Discuss how this process implements the concept of segregation of duties, discussed in Chapter 8. Be specific as to which entity (or entities) performs each of the four event processing functions (authorizing, executing, recoding, and safeguarding resources) mentioned in Chapter 8 (assuming that all four functions are illustrated by the process).
ANS.The four functions are distributed as follows:
a.Authorizing events
- The flowchart does not show the creation or editing of customer master data. We need to know that customer master data maintenance, including assigning credit limits, is not performed by customer service center personnel. We prefer, for example, that personnel in the credit department assign credit limits. As each event is processed, the computer compares the amount of the order to the credit limit. We further assume that the credit department would handle any credit rejects.
- The computer prints picking tickets in the warehouse, thus authorizing the picking of the goods. The computer will not accept a shipment and print a packing slip authorizing the shipment unless there is an open sales order in the sales order master data in the enterprise database.
b.Executing events
- Warehouse and shipping personnel pick the goods, move the goods to shipping, and ship the goods to the customer.
- The computer creates and records the sales order and prepares the picking tickets and shipping documents.
c.Recording events
The computer records the shipment on the sales order master data, the inventory master data, and the general ledger master data (debit cost of goods sold, credit inventory).
d.Safeguarding resources
- Warehouse and shipping personnel have custody of the goods.
- Physical inventory (e.g., periodic physical counts) is beyond the scope of Figure 10.11.
DQ10-6What goals for the OE/S process (both operations process and information process goals) are more difficult to achieve with an enterprise system?
ANS.To answer this question, we might first summarize those goals that might be easier to achieve with an enterprise system. For example:
- The integrated nature of the order fulfillment processes should reduce processing delays and ensure timeliness of acknowledgements and shipments.
- The ability to access the central enterprise database during processing should help to improve data integrity and the security of resources. For example, customer existence and credit checks can be more thorough and based on current data. Up-to-date inventory records reduce inventory shrinkage.
- Integrated systems reduce the possibility of inaccurate or incomplete updates of master data.
On the other hand, enterprise systems may be difficult and costly to install, thus sacrificing efficiency in the early stages of the system’s use. Also, user resistance to the new system may actually cause processes to be slower, less efficient, and subject to manual errors.
DQ10-7Describe how data mining and a CRM system might be used by any of the managers depicted in Figure 10.1, a horizontal perspective of the OE/S process or in Figure 10.2, a vertical perspective of the OE/S process.
ANS.The following is a sample of the ways that data mining and a CRM system might be used by the various decision makers depicted in the chapter:
- They may be used by the credit manager to make credit-granting decisions. The systems can combine credit and sales histories with credit, sales, and bad debt goals to recommend optimal credit limits.
- Quantities or items to be shipped could be compared with actual quantities and items shipped to determine the level of customer service and the performance of the organization’s supply chain. The analysis would be of interest to logistics and marketing VPs and their staffs.
- They could be used to analyze advertising programs to determine their effectiveness. For example, advertising expenditures can be compared to sales (by customer type, customer location, etc.) to determine if an advertising program should be continued, changed, or stopped.
- The systems might be used by the manager of new product development to review sales data, customer requests and complaints, and environmental factors to determine what new products might be developed.
- A CRM system might be designed to monitor customer service activity to troubleshoot backlogs and other problems.
DQ10-8An enterprise system supports a business process by:
a.Facilitating the functioning of the business process
b.Providing records that business events have occurred
c.Storing data for decision making
Describe how the enterprise system depicted in Figure 10.11 provides support in these three areas.
ANS.An enterprise system:
a.Facilitates the functioning of a business process by determining customer existence and credit-worthiness, determining availability and location of inventory, calculating delivery date to be given to the customer, and preparing the picking ticket, bill of lading, and packing slip.
b.Provides records that business events have occurred by updating inventory to reflect the shipment and by creating and updating the sales order.
c.Stores data for decision making such as sales, customer, and inventory data. Possible sales analyses include sales by customer, product, region, sales person, and so on. Logistics and supply chain performance may be analyzed by examining timeliness and completeness of shipments.
Note: Many such analyses are possible.
Problems
Problems 1 and 2
Note: In the pages that follow, we provide solutions for problems 1 and 2 for all three of the Case Studies (Cases A, B, and C). Although the solution for each case study comprises several pages, it is not necessarily comprehensive, nor does it represent the only acceptable answers. Your or your students’ answers easily may vary in two areas. First, the grouping on the annotated table of entities and activities determines the configuration of the current logical DFD. Second, we have included in the formal controls analysis only a sample of the possible present and missing controls. At the end of the descriptions of the controls for each case, we include a list of other controls that you or your students might want to include in a solution.
Stockbridge Company Solutions (see Note on pg. 10-5)
P10-1
a.Table of entities and activities for Stockbridge Company
Entities / Para / ActivitiesCustomer / 2 / 1.Call Stockbridge fulfillment center and give name to CSR.
CSR / 2 / 2.Key enter customer name.
ERP system (computer) / 2 / 3.Retrieve customer data and display onscreen.
CSR / 2 / 4.Examine display.
Customer / 2 / 5.Give items and quantities.
CSR / 2 / 6.Key enter order.
Computer / 2 / 7.Compare amount of the order to available credit.
2 / 8.Allocate inventory.
CSR / 9.Save order.
Computer / 2 / 10.Create sales order record.
2 / 11.Print picking ticket in the warehouse.
2 / 12.Display sales order number.
CSR / 2 / 13.Read sales order number to customer.
Warehouse (clerk) / 3 / 14.Pick goods from shelf.
3 / 15.Record quantity and lot number.
3 / 16.Bring goods and picking ticket to shipping department.
Shipping department (clerk) / 3 / 17.Scan sales order number into computer.
Computer / 3 / 18.Display the sales order master data.
Shipping department (clerk) / 3 / 19.Scan the items and quantities being shipped.
3 / 20.Save the shipment data.
Computer / 3 / 21.Update the sales order master data and inventory (for the shipment).
3 / 22.Create a record on the billing due list data store.
3 / 23.Print a packing slip.
Shipping department (clerk) / 3 / 24.Attach packing slip to goods.
3 / 25.Give goods to carrier.
Carrier / 3
FIGURE SM-10.1Problem 1, part b solution—context diagram for Stockbridge Company
FIGURE SM-10.2Problem 1, part c solution—physical DFD for Stockbridge Company
d.Table of Entities and Activities (Annotated) for Stockbridge Company
Entities / Para / Activities / ProcessCSR / 2 / 2.Key enter customer name. / 1.0 Enter order
ERP System (computer) / 2 / 3.Retrieve customer data and display onscreen.
CSR / 2 / 4.Examine display.
2 / 6.Key enter order.
Computer / 2 / 7.Compare amount of order and available credit.
2 / 8.Allocate inventory.
CSR / 9.Save order.
Computer / 2 / 10.Create sales order record. / 2.0 Record order
2 / 11.Print picking ticket in warehouse.
2 / 12.Display sales order number.
Warehouse clerk / 3 / 15.Record quantity and lot number. / 3.0 Record shipment
Shipping clerk / 3 / 17.Scan sales order number into computer.
Computer / 3 / 18.Display sales order data.
Shipping clerk / 3 / 19.Scan the items and quantities being shipped.
3 / 20.Save the shipment data.
Computer / 3 / 21.Update the sales order master data and inventory.
3 / 22.Create a record on the billing due list data store.
3 / 23.Print packing slip.
3 / 24.Attach packing slip to goods.
FIGURE SM-10.3Problem 1, part e solution—logical DFD for Stockbridge Company
FIGURE SM-10.4Problem 2, part a solution—systems flowchart for Stockbridge
FIGURE SM-10.4Stockbridge systems flowchart (continued)
Accounting Information Systems, 8e 1
Control Goals of the Stockbridge OE/S Business ProcessControl Goals of the Operations Process / Control Goals of the Information Process
Ensure effectiveness of operations: / Ensure efficient employment of resources (computers, people) / Ensure security of resources (inventory, customer data) / For sales order inputs (i.e., customer orders), ensure: / For sales order master data, ensure: / For sales order notification inputs (i.e., shipment data), ensure: / For sales order master data, ensure:
Recommended control plans / A / B / C / IV / IC / IA / UC / UA / IV / IC / IA / UC / UA
Present controls
P-1:Enter customer order close to the location where it is prepared / P-1 / P-1 / P-1 / P-1 / P-1
P-2:Populate input screens with master data / P-2 / P-2 / P-2 / P-2 / P-2
P-3:Independent customer master data maintenance / P-3 / P-3 / P-3
P-4:Compare input data with master data / P-4 / P-4 / P-4
P-5:Procedures for rejected inputs / P-5
P-6:Online prompting / P-6 / P-6 / P-6 / P-6
P-7:Preformatted screens / P-7 / P-7 / P-7 / P-7
P-8:Customer credit check / P-8 / P-8 / P-8
P-9:Confirm input acceptance / P-9
P-10: Turnaround document (picking ticket) / P-10 / P-10 / P-10 / P-10
P-11:Enter shipment data in shipping / P-11 / P-11 / P-11 / P-11
P-12:Independent shipping authorization / P-12 / P-12
P-13:Compare input data with master data / P-13 / P-13 / P-13 / P-13 / P-13
P-14:Confirm input acceptance / P-14
Missing Controls
M-1:One-for-one checking of picking ticket with goods / M-1 / M-1 / M-1 / M-1 / M-1
M-2:One-for-one checking of goods, picking ticket, and sales order data / M-2 / M-2 / M-2
M-3:Procedures for rejected inputs / M-3
M-4:One-for-one checking of packing slip and goods / M-4 / M-4 / M-4
M-5:Procedures for rejected inputs / M-3
M-6:Review open sales order (tickler file) / M-6 / M-6
Possible effectiveness goals include the following:
A — Provide timely acknowledgement of customer orders
B — Provide assurance of customer’s credit worthiness
C — Provide timely shipment of goods to customers / IV = input validity
IC = input completeness
IA = input accuracy
UC = update completeness
UA = update accuracy
See Exhibit SM-10.1 for a complete explanation of control plans and cell entries.
FIGURE SM-10.5Problem 2, part b solution (partial)—control matrix for Stockbridge Company