Petworks Inc. was established in 1963 and is located in northern new jersey. The
ID: 3866837 • Letter: P
Question
Petworks Inc. was established in 1963 and is located in northern new jersey. The company is one of the largest wholesale pet food distribution firms and has limited number of sizeable competitors. It first opened its doors in 1963, only selling dog food. Since then, the firm has grown from just 15 employees to over 150. In 1963, Petworks Inc. revenues of only $40,000; In 2002, revenue was over $100,000. The firm also diversified its product line over the years, and currently offers pet food for dogs, cats, birds, and fish. While Petworks Inc. has shown substantial growth in both revenues and profits since its inception, over the past two years profits have dropped.
Petworks Inc. receive it products from several different manufactures located within the tri-state area. The inventory is generally purchased once stock levels have fallen below 25 percent, and delivery generally takes three days from the time of purchase. It has been brought to the managements attention that Petworks Inc. has had difficulty controlling inventory levels within the past year. The firm has experienced both stock-outs and over purchasing. Top Management has recognized that in order, to maintain their grasp on market share, they must correct these errors. If inventory levels continue to fluctuate so much, Petworks Inc. may begin to lose valuable customers.
Their primary customer base consists of pet stores and veterinarians across the United States. The pet food is generally purchased on credit, and is then sold directly to animal owners by the pet stores and veterinarians.
Revenue Cycle
The revenue cycle begins for Petworks Inc. when a veterinarian or pet retail store places an order with a sales clerk by phone or mail order. The sales clerk then authorizes the credit approval for the customer and enters the sales order into a personal computer. The sales clerk releases copies of the sales order to the warehouse, billing, and shipping departments. The sales clerk then files a copy of the credit approval and sales order, and sends a copy of the invoice, ledger copy, and file copy to the billing department.
Upon receipts of this information, the billing department sends and invoice to the customer. They update the sales journal on the computer terminal and send a journal voucher to the general ledger department. The billing department sends the ledger copy to the accounting department. The accounting clerk updates the accounts receivable subsidiary ledger on the computer and sends an accounts receivable summary to the general ledger department.
The warehouse receives a copy of the stock release and sales order from the sales department. A warehouse employee picks merchandise off the shelves and sends merchandise, along with the stock release, to the shipping department. The warehouse copy of the sales order is then filed.
The shipping department receives a copy of the shipping notice, packing slip, and sales order file copy from the sales department. Once the shipping department receives the merchandise, and shipping clerk completes the shipping notice and prepares the bill of lading. The goods are then given to the carrier along with two copies of the bill of lading to be delivered to the customer. The packing slip and sales order file copy are filed upon shipment.
Once the inventory is shipped, the shipping department sends to the stock release back to the warehouse. The warehouse clerk updates the inventory subsidiary ledger and sends a journal voucher to the general ledger department. A clerk in the general ledger department updates the general journal on the computer from thee journal voucher and reconciles them. Once this task is complete, the accounts receivable summary, the inventory journal voucher, and sales journal voucher are filed.
Cash Receipts
The mail clerk receives the check and the maintenance advice in the mail and separates them. The mail clerk sends the remittance advice to the accounts receivable department and the check to the cash receipts department. In the accounts receivable the AR clerk reduces the customer balance on the computer, according to the amount paid stated on the remittance advice. The AR balance is then updated and the summary information sent to the general ledger department. The cash receipts department records the check amount in the cash receipts journal. A deposit slip is prepared on the computer, and the checks deposited into the company’s bank account via computer journal.
Required:
What would be the internal control weaknesses in the System ?
Explanation / Answer
The internal control weaknesses in the System is the Iventory Management System.
This system could have a proper inventory manegement system.So that when a order is paced ot can be calculated easily so that it doesnot have to go to all te sub system.Having proper link with the system will likewise calculate the stock whenever new order is done and the quatity will be readjusted.