MERCADO, Erica Kaye M.

ACCTSYS
A2B April 28, 2020
O'Brien Corporation is a midsized privately owned industrial instrument
manufacturer supplying precision equipment to manufacturers in the Midwest. The
corporation is 10 years old and uses an integrated ERP system. The administrative
offices are located in a downtown building, and the production, shipping, and receiving
departments are housed in a renovated warehouse a few blocks away.
Customers place orders on the company' Website, by fax, or by telephone. All
sales are on credit, FOB destination. During the past year, sales have increased
dramatically, but 15% of credit sales have had to written off as uncollectible,
including several large online orders to first-time customers who denied ordering
or receiving the merchandise.
Customer orders are picked and sent to the warehouse, where they are placed
near the loading dock in alphabetical sequence by customer name. The loading dock
is used both for outgoing shipments to customers and for receipt of incoming deliveries.
There are 10 to 20 incoming deliveries everyday, from a variety of sources.
The increased volume of sales has resulted in a number of errors in which
customers were sent the wrong items. There have also been some delays in
shipping because items that supposedly were in stock could not be found in the
warehouse. Although a perpetual inventory is maintained, there has been no physical
count of inventory for two years. When an item is missing, the warehouse staff writes
the information down in a logbook. Once a week, the warehouse staff uses a logbook to
update the inventory records.
The system is configured to prepare the sales invoice only after shipping
employees enter the actual quantities sent to a customer. thereby ensuring that
customers are billed only for items actually sent and not for anything on back order.
REQUIRED
A. Identify at least three weaknesses in O'Brien Corporations' revenue cycle
procedures, explain the associated problem, and propose a solution. Present your
answer in a three-column table with these headings: Weakness, Problem, Solution.
Answer
As a business that has been operating for ten (10) years, O'Brien Corporation
shows measures that are prone to errors, miscalculations, and losses. The integration
of enterprise resource planning may be an advantage due to technology, but in
O’Brien’s case, it worsens their operation cycle. This is for the reason that even though
that the ERP only paved way for the company to solely depend on company website,
fax, and telephone. This could not have been a dilemma, if and only if, the company
utilized ERP and managed the company efficiently. All in all, the operations of the
company are also the cause of the errors and losses that they are experiencing.
The following are the weaknesses that burdens the operations, the problem that
emerged due to it, and the possible solutions.
MERCADO, Erica Kaye M. ACCTSYS
A2B April 28, 2020
Weakness Problem Solution
All sales are on credit, The working capital is at Integrate on having face-
and it has a high rate of stake, since all sales are to- face and cash basis
being uncollectible. on account. There are no orders.
certain source of money on
hand.
The clients’ order are The manufacturing Arrange the orders by a
arranged alphabetically operation could not certain and realistic
(based on their names). possible determine which classification, (for example:
order should be prepared by order quantity, due
first. Thus, arrived to the date/ delivery date, and
problem of errors with customer characteristic), in
delivery and product order order to have a proper
specification. sequence of order
manufacturing.
Orders from new The company is sending Require digital signatures,
customers do not require off shipments of orders to especially on all online
any form of validation. mostly unreliable orders from new
customers. And by customers.
shipment, customers are Require a written customer
claiming orders, even if the purchase order as
orders are not theirs, and confirmation on all
ought not to pay for it telephone and fax
(orders are always on processed orders.
account).
Customer credit As there are no extensive The company should have
histories are not checked validation for all orders, the credit standards. It should
before approving orders. company cannot defend be checked from time to
themselves against time, to adjust terms –
customers in bad faith, either to relax or be strict
thus, excessive on credit terms. And there
uncollectible accounts are should be no sales
experienced. accepted from those that
do not meet credit
standards.
Outgoing shipments are Confusion on inventory is The best solution is to
placed near the loading certain to emerge, for there separate the shipping and
dock door without any is no proper physical receiving docks.
physical security. The count. This increases the
loading dock is also risk of theft, which may Another one is to tighten
used to receive incoming account for the security on the items by
deliveries. There are too unexplained shortages in physically restricting
many deliveries received inventory. access to the loading dock
in a day, yet the storage area where customer
is combined with those orders are placed.
that are off for shipment.
MERCADO, Erica Kaye M. ACCTSYS
A2B April 28, 2020

Physical counts of This could possibly cause Physical counts of

inventory are not made the errors regarding inventory should be made
at least annually inventory. This probably at least once a year by an
accounts for the officer that has no bad
inaccuracies in the intentions with the
perpetual inventory products of the company.
records and may also
prevent timely detection of Another one is when
theft. inventory records
discrepancies are noticed,
it be corrected and
investigated.

Aside of having This weakness in The system should be

alphabetical client operation cycle results to configured to match
sequence, there are no sending customers the shipping information to
reliable count on order wrong items. This could sales orders and alert the
and process of result to large amount of shipping employees of any
operations, thus, losses. discrepancies.
shipments are not
reconciled to sales
orders.
The perpetual inventory The fact that inventory is The company should
records are only updated not secured and examined assign employees to
weekly. In real life, with properly, theft could examine the inventory
all the vast amount of happen. This contributes to more frequent. And the
others, examination the unanticipated warehouse staff should
should be done more shortages that result in enter information about
frequent than weekly delays in filling customer shortages as soon as they
routine. orders. are discovered. This is to
immediately correct and
investigate, in order to
avoid worsening the
situation.