Peacock Company: Incomplete Flowchart of Inventory and Purchasing Control Procedures.
Peacock Company is a wholesaler of soft goods. The inventory is composed of approximately 3,500 different items. The company employs a computerized batch processing system to maintain its perpetual inventory records. The system is run each weekend so the inventory reports are available on Monday morning for management use. The system has been functioning satisfactorily for the past 15 months, providing the company with accurate records and timely reports.
The preparation of purchase orders is automatic as a part of the inventory system to ensure that the company will maintain enough inventory to meet customer demand. When an item of inventory falls below a predetermined level, a record of the inventory items is written. This record is used in conjunction with the vendor file to prepare the purchase orders.
Exception reports are prepared during the update of the inventory and the preparation of the purchase orders. These reports list any errors or exceptions identified during the processing. In addition, the system provides for management approval of all purchase orders exceeding a specified amount. Any exceptions or items requiring management approval are handled by supplemental runs on Monday morning and are combined with the weekend results.
A system flowchart of Peacock Company's inventory and purchase order procedure is presented in Exhibit 9.71.1.
a. The illustrated system flowchart (see attached) of Peacock Company's inventory and purchase order system was prepared before the system was fully operational. Several steps that are important to the successful operation of the system were inadvertently omitted from the chart. Now that the system is operating effectively, management wants the system documentation complete and would like the flowchart corrected. Describe the steps that have been omitted and indicate where the omissions have occurred. The flowchart does not need to be redrawn.
b. In order for Peacock's inventory/purchase order system to function properly, control procedures should be included in the system. Describe the type of controls Peacock Company should use in its system to assure proper functioning, and indicate where these activities would be placed in the system.