Hal ver son Car eer Fashi ons, I nc.

SMART ATTIRE FOR PROFESSIONAL WOMEN

Company Background

Hal ver son Car eer Fashi ons, I nc. , i s a women' s appar el chai n i n t he
Nor t hwest . Maj or pr oduct cat egor i es i ncl ude coat s and out er wear , sui t s,
dr esses, ski r t s, bl ouses, sweat er s, hat s, shoes, and accessor i es such
as pocket books, scar ves, hosi er y, and gl oves. The busi ness was st ar t ed
by Loui se Hal ver son wi t h t he obj ect i ve of pr ovi di ng smar t , st yl i sh
at t i r e and accessor i es t o pr of essi onal women, aged t went y- f i ve t o
f or t y- f i ve. Demand f or t hi s t ype of oppar el has i ncr eased subst ant i al l y
i n r ecent year s as mor e and mor e women ent er or r et ur n t o t he wor kpl ace.

Hal ver son Car eer Fashi ons' f i r st st or e opened i n a Seat t l e shoppi ng
mal l i n 1972. Loui se Hal ver son ser ved as st or e manager , and was
assi st ed by t wo f ul l t i me sal es cl er ks and a par t - t i me cl er k hel pi ng on
weekends. The st or e pr osper ed, and i n 1974 Hal ver son deci ded t o expand
t he oper at i on wi t h addi t i onal out l et s. At t he same t i me, she
i ncor por at ed i n t he St at e of Washi ngt on wi t h her sel f as pr esi dent . The
chai n now has t went y st or es di st r i but ed i n met r opol i t an ar eas
t hr oughout Washi ngt on and Or egon, and Hal ver son i s now cont empl at i ng
f ur t her expansi on i nt o Br i t i sh Col umbi a, Canada. The cor por at e
headquar t er s i s st i l l i n Seat t l e, but sever al year s ago al l
admi ni st r at i ve act i vi t i es wer e moved t o a sui t e i n a subur ban of f i ce
par k. The or i gi nal Seat t l e st or e i s now t r eat ed i n t he same way as any
ot her l ocal st or e.

Because of t he expansi on, Loui se Hal ver son i s now al most t ot al l y
engaged i n di r ect i ng t he busi ness and sel ect i ng l i nes of mer chandi se.
Al ong wi t h her mer chandi se manager , Ant hony Roger s, a young man
r ecent l y hi r ed f r oma pr omi nent f ashi on desi gn house, Hal ver son
r egul ar l y at t ends f ashi on shows and t r ade f ai r s i n New Yor k Ci t y and
ot her maj or ci t i es. They al so spend a consi der abl e amount of t i me
vi si t i ng cl ot hi ng manuf act ur er s t hr oughout t he count r y. Roger s has an
addi t i onal r esponsi bi l i t y as a war dr obe consul t ant , advi si ng cust omer
on col or combi nat i ons, dr ess i mage, st yl e, and si mi l ar mat t er s.

Headquar t er s st af f i ncl udes t he mer chandi se manager ( who suppl y t he
buyer s) ; a gener al manager , Sal l y St ephens; and a f i nanci al manager ,
Nancy Lou Wol f or d. Al so on t he st af f ar e t hr ee assi st ant buyer s, t wo
mar ket i ng speci al i st s, t hr ee i nvent or y cont r ol cl er ks, f i ve account ant s,
and cl er i cal suppor t Per sonnel . Thr ee year s ago, Hal ver son Car eer
Fashi ons bought a mi ni comput er t o per f or mr out i ne account i ng and ot her
dat a pr ocessi ng, and hi r ed t wo f ul l - t i me comput er oper at or s. An
or gani zat i on char t f or t he cor por at e headquar t er i s shown i n Exhi bi t 1.

Local Retail Stores

The r et ai l st or es ar e l ocat ed i n maj or shoppi ng mal l s, and t hey
t ypi cal l y occupy about 2, 000 squar e f eet of f l oor space. Each st or e i s
r un by a st or e manager who super vi ses assi st ant manager and f our t o
f i ve sal es cl er ks. The st or es ar e eval uat ed as pr of i t cent er s, and
manager s ar e gi ven a f ai r amount of aut onomy as l ong as t hei r st or es
ar e pr of i t abl e. Bui l di ng mar ket demand i n a new ar ea obvi ousl y t akes
t i me, but sal es and pr of i t s ar e moni t or ed cl osel y by headquar t er t o
gauge f ut ur e pot ent i al . St or es ar e nor mal l y gi ven one year t o
demonst r at e pr of i t abi l i t y. I f a st or e f ai l s t o do so, Hal ver son deci des
whet her t o ext end t he pr obat i on per i od, r epl ace t he manager , or cl ose
t he st or e. So f ar , onl y t wo st or es have been cl osed, i n each case
because t he mal l i n whi ch t he st or e was l ocat ed di d not gr ow as f ast as
ant i ci pat ed. New st or e manager s ar e usual l y r ecr ui t ed f r omt he r ank of
t he assi st ant manager s of exi st i ng st or es. Cur r ent l y, most of Hal ver son
Car eer Fashi ons' empl oyees ar e women, al t hough t her e ar e t hr ee
successf ul mal e st or e manager s and sever al mal e assi st ant st or e
manager s and sal es cl er ks.

St or e pr of i t i s def i ned, f or per f or mance- eval uat i on pur poses, as
segment mar gi n: net sal es r evenue l ess di r ect and al l ocat ed i ndi r ect
cost s. Di r ect cost i ncl ude t he cost of mer chandi se sal es, r ent ,
ut i l i t i es, sal ar i es and sal es commi ssi ons, l ocal adver t i si ng, cr edi t -
car d f ees, and mi scel l aneous expenses. I ndi r ect cost s i ncl ude cor por at e
over head cost s al l ocat ed t o st or es at a r at e of 15 per cent of gr oss
sal es. I n r et ur n f or t hi s over head al l ocat i on, t he cor por at i on per f or ms
al l col l ect i ons and payr ol l ser vi ces and al so pays f or maj or pr oduct
and i nst i t ut i onal adver t i si ng. As di scussed l at er , st or es ar e char ged a
separ at e bur den t o cover cent r al i zed pur chasi ng expenses.

Purchasing and Merchandise Policies

Buyi ng i n t he appar el busi ness r equi r es a good f eel f or f ashi on t r ends,
but i nevi t abl y i t i s subj ect t o consi der abl e r i sk. Mer chandi se must be
di spl ayed t hee t o f our mont hs bef or e t he sel l i ng season and must be
or der ed si x t o ni ne mont hs bef or e expect ed del i ver y. Dur i ng t hat per i od,
f ashi ons and consumer t ast e may change, and what seems t o be a
pr omi si ng new t r end may f i zzl e out . For exampl e, t he Par i s and New Yor k
f ashi on houses may al l be showi ng ski r t s f our i nches above t he knee,
but consumer s may i gnor e t hei r l ead and cont i nue t o i nsi st on l onger
ski r t s.

Buyi ng f or Hal ver son Car eer Fashi ons i s cent r al i zed at t he Seat t l e
headquar t er s because of bot h t he needed exper t i se and t he r i sk i nvol ved.
Hal ver son and her buyer s sel ect t he l i nes of mer chandi se t o be car r i ed,
and t hese ar e shown t o st or e manager s at quar t er l y meet i ngs. However ,
i nvent or y deci si ons ar e compl et el y decent r al i zed, and manager s ar e f r ee
t o choose t he quant i t i es of each i t em, and t he col or s, st yl es, and
si zes t o be car r i ed i n t hei r par t i cul ar st or es. Each st or e manager
pr epar es a pur chase r equi si t i on l i st i ng hi s or her mer chandi se
r equi r ement s and submi t s i t t o Seat t l e. Pur chase or der s ar e t hen sent
t o t he suppl i er or di nar i l y r equest i ng di r ect shi pment t o t he l ocal
st or e. Pur chase r equi si t i ons f r omdi f f er ent st or es may be consol i dat ed
i nt o a si ngl e pur chase or der i n cases wher e vol ume di scount s ar e
avai l abl e f r oma par t i cul ar suppl i er . I n t hi s si t uat i on, t he
mer chandi se i s nor mal l y shi pped t o t he company headquar t er s and i s
subsequent l y di st r i but ed t o l ocal r et ai l st or es. An I nvent or y Tr ansf er
Repor t - a ki nd of i nt er nal shi ppi ng not i ce- i s pr epar ed, l i st i ng t he
i t ems sent t o t he st or e i n quest i on. However , some vendor s ar e wi l l i ng
t o di vi de up a pur chase or der and make par t i al shi pment s t o i ndi vi dual
st or es, t her eby cut t i ng del i ver y l ead t i me and savi ng shi ppi ng cost s.

Al l mer chandi se i s checked upon del i ver y t o l ocal r et ai l st or es. St or e
manager s or t hei r assi st ant s pr epar e Recei vi ng Repor t s, l i st i ng t he
quant i t y and condi t i on of mer chandi se r ecei ved. Copi es of t hese r epor t s
ar e f or war ded t o Seat t l e ei t her f or r econci l i at i on wi t h headquar t er s'
r ecei vi ng r epor t s or f or i ni t i at i on account s payabl e. Al l di sbur sement s
t o vendor s ar e made f r omSeat t l e. Damaged gar ment s or goods t hat wer e
not or der ed ar e r et ur ned t o suppl i er s, and a Goods Ret ur ned Repor t i s
sent t o headquar t er s. Accept abl e i t ems ar e t agged wi t h t he i nvent or y
number , coded cost , and pr i ce. Af t er t he manager or assi st ant manager
ver i f i es t he t ag dat a f or accur acy, t he mer chandi se i s r eady t o be
di spl ayed on t he r acks.

No cash changes hands when a r et ai l st or e r ecei ves mer chandi se i n t he
st or e' s account i s char ged f or t he whol esal e cost pl us a 5 per cent
bur den t o cover pur chasi ng cost s. Thi s pol i cy i s f ol l owed whet her or
not t he goods ar e shi pped di r ect l y t o t he st or e.

Sales and Credit Policies

Hal ver son Car eer Fashi ons sel l s mer chandi se of f t he r acks and al so
i ssued i t own gi f t cer t i f i cat es. Gi f t cer t i f i cat es, whi ch can be
exchanged f or mer chandi se i n t he f ut ur e, ar e avai l abl e i n denomi nat i ons
of $25, $50, $100, and S200. The company al so of f er s a l ay- away pl an,
al t hough r el at i vel y f ew cust omer s cur r ent l y t ake advant age of t hi s
once- popul ar ser vi ce.

Cash and cr edi t - car d sal es ar e ent er ed i nt o a cash r egi st er t hat
pr oduces a cust omer sal es sl i p and a paper - t ape r ecor d of t he st ock
number , t he sal es cl er k' s i dent i f i cat i on code, and t he pr i ce of t he
i t em. Tags r emoved f r ommer chandi se ar e accumul at ed f or compar i son wi t h
t he paper - t ape r ecor ds at t he end of t he day. Checks ar e accept ed upon
submi ssi on of sui t abl e i dent i f i cat i on, nor mal l y a dr i ver ' s l i cense and
maj or cr edi t car d. Sal es i nvol vi ng checks f or mor e t han $100 must be
aut hor i zed by t he st or e manager or assi st ant manager . I f checks bounce,
t he st or e can t ur n t hemover t o t he cor por at e of f i ce f or col l ect i on.
Ul t i mat el y, i f t he amount cannot be col l ect ed, i t i s char ged t o t he
st or e' s account .

Onl y Amer i can Expr ess, Vi sa, Mast er Car d, and Di scover car ds ar e
cur r ent l y accept ed. Cr edi t - car d pol i ci es r equi r e appr oval of al l
char ges i n excess of $50. Sal es cl er ks must cal l f or appr oval and
i nser t t he appr oval code on t he char ge sl i ps. The mer chant ' s copi es of
t he char ge sl i ps ar e accumul at ed i n a dr awer under t he cash r egi st er
f or r econci l i at i on wi t h t he cash- r egi st er t ape at t he day' s end. St or es
ar e char ged t he st andar d f ee of 3 per cent of gr oss cr edi t - car d sal es,
but ar e not hel d r esponsi bl e f or any associ at ed bad debt s. Gi f t
cer t i f i cat es accept ed i n exchange f or mer chandi se ar e cancel ed by a
r ubber st amp and t hen pl aced i n t he dr awer under t he cash r egi st er .

Company pol i cy i s t o accept r et ur n of mer chandi se f or a r ef und wi t hi n
f i f t een days of sal e, on t he condi t i ons t hat t he gar ment has not been
wor n and t he sal es sl i p i s submi t t ed. A Mer chandi se Ret ur n sl i p i s
f i l l ed out and aut hor i zed by t he st or e manager or assi st ant manager . I f
t he r et ur ned gar ment i s i n sat i sf act or y condi t i on, i t i s put back on
t he r acks f or r esal e at ei t her t he f ul l or a r educed pr i ce. Gar ment s
t hat ar e damaged or t hat have been soi l ed by t he cust omer may st i l l be
accept ed f or a r ef und, but t hey must be mar ked down f or r esal e. I f t he
gar ment was consi der ed def ect i ve at t he t i me of sal e, a Goods Ret ur ned
Repor t i s compl et ed and t he gar ment i s r et ur ned t o t he vendor f or
cr edi t .

Cl ear ance sal es ar e hel d i n J anuar y and August . The August sal e occur s
near t he end of t he f i scal year and ser ves t o r educe i nvent or y l evel s
bef or e t he annual physi cal i nvent or y count at each st or e.

Sal es cl er ks ear n a basi c sal ar y, pl us a commi ssi on of 2 per cent of
gr oss sal es. However , 5 per cent of each empl oyee' s commi ssi on i s
wi t hhel d unt i l year end t o pr ovi de an al l owance f or sal es r et ur ns.
Mont hl y st at ement s ar e pr epar ed, showi ng t he cl er k' s gr oss sal es, gr oss
commi ssi on, cur r ent mont h' s wi t hhol di ng, and net commi ssi on pai d. The
st at ement s al so show t he year - t o- dat e gr oss wi t hhol di ng, of f set t i ng
sal es r et ur ns, and net wi t hhol di ng. Cl er ks who have f ol l owed company
pol i ci es r el at i ng t o cust omer i dent i f i cat i on ar e not hel d r esponsi bl e
f or bad checks.

Accounting Policies and Procedures

St or e manager s ar e r esponsi bl e f or pr epar i ng Dai l y Cash Repor t s and
mont hl y Oper at i ng Summar y Repor t s. The cash r epor t s ( Exhi bi t 2) pr ovi de
an account i ng of al l cash r ecei ved, di sbur sed, and deposi t ed as wel l as
gi f t cer t i f i cat es i ssued and cust omer r et ur ns ( due bi l l s i ssued) . The
r epor t s f or t he pr evi ous week must be submi t t ed t o t he cor por at e
headquar t er s ever y Monday. The Oper at i ng Summar y Repor t s ar e submi t t ed
at mont h' s end. They show gr oss cash, cr edi t - car d, and gi f t - cer t i f i cat e
sal es f or each of t he maj or pr oduct l i nes and out - of - pocket expenses
br oken down i nt o account cat egor i es speci f i ed by t he f i r m' s char t of
account s. Cancel ed gi f t cer t i f i cat es ar e sent t o headquar t er s wi t h t he
oper at i ng r epor t s.

Each r et ai l st or e mai nt ai ns a l ocal bank account i nt o whi ch al l cash
and checks ar e deposi t ed and on whi ch checks ar e dr awn i n payment of
l ocal r ent , ut i l i t i es, adver t i si ng, and mi scel l aneous expenses. Bot h
t he st or e manager ' s and t he assi st ant manager ' s si gnat ur es ar e r equi r ed
on al l checks, and di sbur sement s must be r ecor ded i n a check r egi st er .
Bank deposi t sl i ps ar e compl et ed i n t r i pl i cat e. The mast er copy i s
r et ai ned by t he bank, a second copy i s r et ur ned t o t he st or e, and t he
t hi r d i s f or war ded t o t he cor por at e headquar t er s at t he end of each
mont h. The bank has i nst r uct i ons t o send one copy of i t s mont hl y
st at ement t o headquar t er s and a second copy t o t he st or e. St or e
manager s ar e r esponsi bl e f or per f or mi ng t he r out i ne bank r econci l i at i on
and ar e r equi r ed t o send a copy of t he r econci l i at i on, t oget her wi t h a
copy of t he check r egi st er , t o headquar t er s at t he end of t he mont h.

Most of t he st or e manager s pr epar e t hei r r out i ne r epor t s manual l y,
al l t hough a f ew have acqui r ed per sonal comput er s and submi t t he
r equi r ed dat a on spr eadsheet pr i nt out s. At headquar t er s, dat a f r omt he
Dai l y Cash Repor t s and Oper at i ng Summar y Repor t s ar e keyed i nt o a
mi ni comput er syst emf or pr ocesssi ng. The scr een i nput f or mused f or
ent r y of t he r et ai l st or es' oper at i ng dat a i s shown i n Exhi bi t 3. I t
f or med par t of t he syst em' s document at i on pr epar ed by t he desi gn t eam
t hat devel oped t he syst emi n use at t he cor por at e headquar t er s.

Af t er t he dat a f r omeach r et ai l st or e have been accumul at ed, cor por at e
over head and pur chasi ng expenses ar e al l ocat ed. Mont hl y Oper at i ng
St at ement s ar e t hen pr epar ed and di st r i but ed t o t he r et ai l st or es. Each
of t hese st at ement s i ncl udes t he aggr egat e dat a f or t he whol e
cor por at i on as wel l as oper at i ng dat a f or t he i ndi vi dual st or e.
Det ai l ed r esul t s f or one st or e ar e not made avai l abl e t o t he manager s
of ot her st or es.

Required

Systems Analysis

1. The f i nanci al manager has r ecommended t hat t he st or es i nst al l
comput er i zed poi nt - of - sal e r egi st er s, wi t h magnet i c wands t hat coul d
r ead coded pr oduct , cost , and pr i ce i nf or mat i on on mer chandi se t ags.
The sal es r egi st er s woul d i nt er f ace wi t h a mi cr ocomput er at each st or e.

Li st and br i ef l y expl ai n t he advant ages and di sadvant ages of such a
syst em, as compar ed wi t h t he manual t aggi ng and r ecor di ng syst em
pr esent l y i n use.

2. I f mi cr ocomput er s wer e i nst al l ed at each st or e, how coul d dat a
communi cat i ons bet ween t he st or es and headquar t er s i s i mpr oved? Suggest
al t er nat e schemes and eval uat e each scheme on t he basi s of l i kel y cost s
and benef i t s.

3. One of t he st or e manager s has suggest ed t hat Hal ver son Car eer
Fashi ons est abl i sh i t s own r evol vi ng cr edi t pl an, i n addi t i on t o
accept i ng t he maj or cr edi t car ds. What f act or s shoul d be consi der ed by
management pr i or t o maki ng a deci si on on t hi s pr oposal ? What account i ng
dat a woul d be needed t o suppor t t he deci si on? Ar e t he r equi r ed dat a
avai l abl e f r omt he exi st i ng account i ng syst em?

4. I f t he company deci ded t o i mpl ement a r evol vi ng cr edi t scheme, what
t ype of cr edi t scr eeni ng cr i t er i a and pr ocedur es? woul d you r ecommend?

Systems Design

5. Devel op a char t of account s f or one of Hal ver son Car eer Fashi ons'
r et ai l st or es. Compar e and cont r ast i t wi t h t he cor por at i on' s char t of
account s.

6. Devel op/ desi gn t he dat a t abl es l i st i ng al l dat a el ement s per t ai ni ng
t o t he oper at i ons of a l ocal st or e and at t he cor por at e headquar t er s,
f or st or i ng dat a on r et ai l st or es' pur chases, sal es, and ot her r el evant
i t ems. The t abl es shoul d def i ne each dat a el ement and i ndi cat e i t s t ype
( numer i c, al phanumer i c, et c. ) and l engt h. Def i ni t i ons shoul d be pr eci se
and unambi guous. Avoi d ambi guous f i el d names such as "dat e" and" cost . "

7. Pr epar e a f or mdesi gn f or t he Mont hl y Oper at i ng St at ement sent t o
each r et ai l st or e. Assume t hat t he st at ement wi l l be pr epar ed, at l east
i n par t , f r omt he dat a i n t he f i l e r ef er r ed t o i n Exer ci se 6 and t hat
i t wi l l be pr i nt ed on a st andar d 132- col umn l i ne pr i nt er .

8. Desi gn a f or mf or use by each st or e t o account f or l ay- away
mer chandi se.

Internal Control

9. The f i nanci al manager i s concer ned wi t h t he poor cash cont r ol at t he
l ocal st or es and i nt ends t o i mpr ove i nt er nal cont r ol s i n t hi s ar ea. I n
par t i cul ar , she f ear s t hat an unscr upul ous st or e manager or assi st ant
manager coul d wi t hdr aw t he f unds cor r espondi ng t o a mont h' s accumul at ed
sal es r evenue and l eave t own. What changes coul d be made i n t he cash-
handl i ng pr ocedur es t o make such a def al cat i on mor e di f f i cul t ?

10. What ot her i nt er nal cont r ol concer ns do you have per t ai ni ng t o
oper at i ons at t he l ocal st or es? Can anyt hi ng be done- r eal i st i cal l y- t o
r educe t he r i sks?

11. Est abl i sh an ef f ect i ve company pr ocedur e t o r egul at e t he voi di ng or
cor r ect i ng of account i ng t r ansact i ons. Exampl es mi ght be t he
cancel l at i on of a sal e af t er t he amount i s r ung up on t he cash r egi st er
and t he changes necessar y i f a cust omer deci ded t o pay cash i nst ead of
usi ng a cr edi t car d.

12. Devi se appr opr i at e i nt er nal cont r ol pr ocedur es f or t he i ssuance and
r edempt i on of gi f t cer t i f i cat es.

13. An unant i ci pat ed pr obl emr ecent l y occur r ed at an Or egon st or e. The
assi st ant manager br oke her wr i st whi l e on a ski i ng t r i p and her ar m
and hand wer e i n a cast f or t wo mont hs. As a r esul t , she was unabl e t o
si gn checks. The st or e t ypi cal l y i ssues t went y t o t hi r t y checks per
mont h, some of t hemneeded at shor t not i ce. What pol i ci es or pr ocedur es
woul d you r ecommend t o deal wi t h such a pr obl em?

14. A l ocal r et ai l st or e and sever al nei ghbor i ng st or es i n a shoppi ng
mal l wer e dest r oyed by f i r e. The st or e' s mer chandi se and most of i t s
account i ng r ecor ds wer e compl et el y dest r oyed, but f or t unat el y, t he
assi st ant manager had t aken t he mont h' s cash- r egi st er t apes home, wi t h
t he i nt ent i on of per f or mi ng a mar ket i ng anal ysi s. The i nsur ance company
needs an est i mat e of t he cost of mer chandi se dest r oyed. Pr epar e i n
out l i ne f or ma sui t abl e r epor t f or t he i nsur ance company, i ndi cat i ng
t he or i gi nal cost of t he pr oper t y dest r oyed or damaged and t he
est i mat ed r epl acement cost s. Ar e t her e adequat e dat a t o pr epar e such an
est i mat e? What met hods mi ght be used t o est i mat e dat a not avai l abl e
f r omsur vi vi ng r ecor ds? What i nt er nal cont r ol s shoul d have been i n
pl ace t o saf eguar d t he account i ng r ecor ds? Expl ai n.



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