Question

Bottoms Shoes, Inc. makes casual shoes and sandals and has experienced significant growth over the past 16 months. The interesting design of its product lines has always been the key to their success. It is currently still using a system consisting of manual job costing sheets and inventory cards. Although this system worked fine in the past, the company’s recent growth has resulted in several problems with operations and inventory control.

The biggest problem is with meeting the production and delivery schedules. Many products are delivered late because the products are not completed on time. In addition, some products are delayed in the production process because the required materials are out of stock—it sometimes takes a week or more to restock back-ordered materials. To make matters worse, the company has been unable to control waste of its raw materials. There are significant quantities of materials left over after the production runs. These excess materials are eventually written off because no know scrap market exists.

Job costing sheets and inventory cards are updated at the end of each week . It takes nearly a week for the production clerks to update the accounting records from these documents. When customers inquire about the status of their orders, the production clerks use the job costing sheets to estimate delivery dates. Because of the back-order problems, though, these estimates are often overly optimistic. This inability to provide accurate delivery dates has been a serious source of customer dissatisfaction.

The production and inventory managers have recognized the need for the company to improve its system of tracking customer orders and maintaining raw materials inventory. They have tried to convince senior management of the need to improve the timeliness of information flow between the production, inventory, and accounting departments. However, top management believes that customers will be willing to wait for their orders because the products are currently in high demand. Furthermore, senior management is reluctant to spend money on automation.

Recently, competitors have started to imitate BSI’s shoe designs, and some customers have hinted that they are tempted to place future orders with these competitor companies. BSI’s production and inventory managers are making another plea to senior management for a new computerized inventory information system.

REQUIRED:

a. List the problems with the existing system at Bottoms Shoes.

b. Identify the relevant information that the production and inventory managers need to accumulate in order to support the decision to automate the conversion process.

c. List specific items that could be provided by an automated system, and describe how this could be essential to the company’s continued success.

Answer 1

a.Problems with the existing systems at Bottom Shoes are:-

• Company having manual job cost sheets and inventory card system.
• Problem in meeting the production and delivery schedule (delay in delivery of product).
• Required materials are out of stock during production time.
• No control on waste of its raw material.
• Delay in updating the accounting record form the job costing sheet and inventory cards.

b.Following relevant information that the production and inventory managers should accumulated in order to support the decision to automate the conversion process :-

• Due to manual system of costing there is delay in meeting the production and delivery schedule.
• As the Inventory system is on inventory card therefore unable to estimate the correct material stock.
• Due to manual Inventory system unable to correctly identify the raw material requirement and it create loss as waste in raw material.
• As the manual system used in company there is delay in updating the accounting records due to this delay in recording data on real time basis.

c.Following specific items that provided by automated system which are essential for company success :-

• Automated System will accounting the data on real time basis which will reduce the    time of accounting drastically.
• Using the automated system of Inventory will reduce the waste of raw material by estimating correct requirement of stock material for production.
• Using automate system company can track customer orders on real time which will reduce customer dissatisfaction.
• Using automate system company can meet and delivery schedule on time which will increase customer satisfaction.