Question 1: (06 Marks) Khan

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Question
1:

(06 Marks)
Khan Corporation is a midsize,
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’s 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 to receive incoming deliveries. There are ten to
twenty incoming deliveries every day, 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
not been a physical count of inventory for two years. When an item
is missing, the warehouse staff writes the information down in log
book. Once a week, the warehouse staff uses the log book 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.
Questions:
a. Identify at least three weaknesses
in Khan Corporation’s revenue cycle
activities.
[2 points]
b. Describe the problem
resulting from each weakness. [2 point]
c. Recommend control procedures that
should be added to the system to correct the weakness. [2
point]