Beccan Company (Centralized Purchases and Inventory)

Beccan Company is a discount tire dealer oper­ating 25 retail stores in the metropolitan area. Beccan sells both private-brand and name-brand tires. The company operates a centralized purchasing and warehousing facility and employs a perpetual inven­tory system. All purchases of tires and related sup­plies are placed through the company’s central Purchasing Department to take advantage of quan­tity discounts. The tires and supplies are received at the central warehouse and distributed to the retail stores as needed. The perpetual inventory system at the central facility maintains current inventory records, designated reorder points, and optimum order quantities for each type and size of tire and other related supplies. Beccan uses five documents in its inventory control system.

Retail stores requisition.    The retail stores submit this document to the central warehouse whenever they need tires or supplies. The shipping clerks in the Warehouse Department fill the orders from inven­tory and authorize delivery to the stores.

Purchase requisition. The inventory control clerk in the inventory Control Department prepares this document when the quantity on hand for an item falls below the designated reorder point. It is then forwarded to the Purchasing Department.

Purchase order. The Purchasing Department prepares this document when items need to be ordered. It is then submitted to an authorized vendor.

Receiving report. The Warehouse Department prepares this document when ordered items are received from vendors. The receiving clerk completes the document by indicating the vendor’s name and the date and quantity of the shipment received.

Invoice. An invoice is received from vendors, specifying the amounts owed by Beccan.

The following departments are involved in Bec­can’s inventory control system:

Inventory Control Department.   Responsible for the maintenance of all perpetual inventory records for all stock items. This inventory includes current quantity on hand, reorder point, optimum order quantity, and quantity on order for each item carried.

Warehouse Department.     Maintains the physical inventory of all items carried in stock. All orders from vendors are received (receiving clerk) and all distributions to retail stores are filled (shipping clerks) in this department.

Purchasing Department. Places all orders for items needed by the company.

Accounts Payable Department. Maintains all open accounts with vendors and other creditors, in addition to processing payments.

Required:

Prepare a document flowchart that indicates the interaction and use of these documents among all departments at the central facility of Beccan Com­pany. It should provide adequate internal control over the receipt, issuance, replenishment, and pay­ment of tires and supplies. You may assume that there are a sufficient number of document copies to ensure that the perpetual inventory system has the necessary basic internal controls.

(CMA Examination, adapted)

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