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How do these analyses help evaluate if the sites are purchasing more raw materials than they need? List some additional analyses that would be useful. Use the Ortho, Inc. dataset to create...

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Ortho Inc. is a medical device manufacturer based in San Diego, California. The company produces and sells custom-made knee
eplacement implants:
Itis a privately held company and files U.S GAAP based financial statements with its bank as part of its debt covenants.
«The board of directors is very involved and continues to emphasize the importance of well-designed and effective internal
controls.
« Orthois a decentralized organization, with 5 manufacturing and sales sites across the United States employing a total of 28
product managers and 29 sales managers. Each site operates independently and is responsible for procurement of raw
materials, production, and sales of finished products in its own geographic region. Sales managers maintain their own custome
elationships, while product managers monitor inventory levels and order raw materials as needed.
« Silicone and plaster are used to create the molds for all the company’s knee replacements. The materials poured into molds vary
y product-some are metal, some are plastic, and some are ceramic.
The company has invested significantly in the development and maintenance of its information system to collect and report complete
and accurate data. Company management uses the data captured in the information system to creat reports and support decision-
making. The data dictionary includes the most relevant data used by management, accountants, auditors, and other professionals.
MATERIAL MASTER TABLE
ET
Material Category Constant stating raw material
Material “ Material item identifie
Material Description 0 Description of material
Notes: The Material Master table contains information about different raw materials purchased by Ortho.
PRODUCT MASTER TABLE
Name PrimaryKey Definition
ProductCategory a Constant stating knee implant
Product “ Product item identifie
ProductDescription 0 Description of product

Notes: The Product Master table contains information about different products sold by Ortho.
TRANSACTIONS TABLE
JEL TS Primary Key Definition
TransType v Indicates the type of transaction (O for orders and § fo
sales)
TransNumber “ Identifier for orders and sales
SiteCode o ‘Transaction site (one of five locations)
Manager O Employee associated with the transaction
EntitylD O Supplie
Customer associated with the transaction
Quantity oO ‘Transaction quantity
Unit oO Unit of transaction (Ib or kg for orders, ea for sales)
UnitPrice oO Price per unit
TransDate Oo Sales/purchase order date
CompleteDate oO Shipping
eceiving date (sales/orders)
Item 0 ‘The material purchased or product sold
CreatedBy O ‘The source of the data (e.g., daily batch)
Subtotal O ‘Transaction total before tax (UnitPrice * Quantity)
Tax 0 ‘Tax amount

Notes: The Transactions table contains a combination of purchase order, sales order, and sales return transactions
SITES TABLE
Name Jes E AC] n
SiteCode “ Identified for company sites (five state a
eviations)
SiteName 0 Name of site (states)

Notes: The Sites table contains the name of each site, which is the name of the state where the site is located.

EMPLOYEE MASTER TABLE
PTS PrimaryKey Description
EmployeelD 2 Employee identifie
FirstName 0 Employee first name
LastName 0 Employee last name
SiteCode a Company site identified (state)
Position 0 Employee position
OrderApproval 0 Employee order approval authority

Notes: The Employee Master table contains information about employees associated with the sales order and pur-
chase order transactions, c.g, sales and product managers.
ENTITY MASTER TABLE
SPITS Primary Key Description
EntitylD “2 Entity (supplie
custome
Ortho, Inc.) identifie
SiteCode 0 Indicates which Ortho site the entity is associated with
EntityName 0 Entity company name
ContactFirstName 0 Entity contact first name
ContactLastName 0 Entity contact last name
Phone 0 Entity phone
Email 0 Entity email
StreetAddress| 0 Entity street address
City 0 Entity city
State g Entity state
Zip 0 Entity zip code
EntityType 0 Entity type (“S” for customer and “O for supplier)

The entity-relationship diagram (ERD) shows the relationships among the tables in the information system.
EntityRelationship Disgram (ERD)
A
Stename
:
§ Material Quantity. FirstName
unt LastName
I E = im
me Sw se
—_— | completeoate OrderApproval
=
me CE
— A C
ProductCategory [C0
Productoescrption
Sttecode
Entityname
contactirstName
ContactLasthame
Phone
Email
Strectaddress
ay
state
zp
Entityrype.
(Notes: The ERD indicates which tables Joi and which columns 0 use the ons)
The comparative income statement shows income for 2024 and 2025.
Ortho Inc. Comparative Income Statement
Comparative Income Statement

EILTVITEEN
XXXXXXXXXX
(audited) (unaudited)
Net Sales $913 $854
Costof Sales XXXXXXXXXX
Gross Profit XXXXXXXXXX
Research and development 57 59
Selling, general and administrative XXXXXXXXXX
Recall charges, net of insurance proceeds 5 5
Intangible asset amortization 3 2
Total operating expenses XXXXXXXXXX
Operating Income 78 50
Other income (expenses), Net 1 2
Earnings before income taxes 79 52
Income taxes 1 8
Net earnings $68 $44
Managerial Accounting: Interpret Diagnostic Analytics
You have been tasked with understanding the relationship between sales orders and purchase orders to acquire raw materials.
Cu
ently, production sites are individually responsible for all purchases. The benefit of this decentralized organization s that the sites
can quickly respond to changes in production demand. The downside is that sourcing for purchases is not coordinated between the
sites. There is a concern that some sites’ purchasing departments have been buying more raw materials than needed.
Your manager has asked you to analyze purchases compared to sales. You prepared the following analyses.
Ortho, Inc.
Sales Orders Vs. Purchase Orders
$10,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000

Jan. Apr. Jul Oct. | Jan. Apr. Jul. Oct. |Jan. Apr. Jul Oct |Jan. Apr. Jul. Oct.
XXXXXXXXXX
Purchase Orders Sales Orders
Ortho Inc.
Co
elation between Purchases and Sales
Purchase Orders Sales Orders
Purchase Orders 1
Sales Orders XXXXXXXXXX
1. How do these analyses help evaluate if the sites are purchasing more
aw materials than they need?
2. List some additional analyses that would be useful.
3. Use the Ortho, Inc. dataset to create additional analyses.
Document in the space provided the method you used to create you
analyses, your justification regarding why it is valid and reliable. and
your interpretation of the results of your analysis from the perspective
of the Ortho management team.
Answered 4 days After Nov 20, 2023

Solution

Shubham answered on Nov 24 2023
17 Votes
Question 1
Sales Orders vs. Purchase Orders Graph
It includes graphical representation comparing sales orders and purchase orders over time allows for visual examination of relationship between sales orders and purchase orders. If purchase orders exceed sales orders, it may indicate overestimation of raw material needs. The peaks and valleys of graph can be analysed to identify patterns and trends for helping management to understand that there are inefficiencies in procurement process. If the purchase orders spike but sales orders remain stable, this could signal an issue with forecasting and communication between production and sales teams.
Co
elation Analysis
The co
elation coefficient between purchases and sales provides quantitative measure of the relationship between two variables. It is the co
elation close to 1 indicates strong positive co
elation suggesting that as sales increase purchases also increase. If the co
elation is significantly less than 1 it can be considered as weaker relationship. The co
elation of 0.75 indicated in the analysis suggests a strong positive co
elation. This implies that in general as sales orders increase purchase orders also increase (Li, Wu and Mai, 2019). It is expected in well-functioning organization and very high co
elation that could raise suspicions of overordering if sales are not reflecting a similar pattern.
Seasonal Analysis
The inclusion of seasonal trends in Sales Orders vs. Purchase Orders graph is crucial for identifying patterns that is not evident in straightforward comparison. If there are regular spikes in purchase orders i
espective of the sales trends then this could indicate lack of synchronization between production needs and actual demand. Seasonal analysis helps to contextualize purchasing patterns that are align with expected fluctuations in demand.
The analyses help in assessing efficiency of procurement process of Ortho Inc. It provides a comprehensive view of relationship between sales and purchases over time that allows identification of potential discrepancies and inefficiencies (Pataropura, Riki and Saputra, 2019). The consistently higher volume of purchase orders compared to sales orders and it includes very high co
elation between two. It describes about i
egular purchasing patterns outside of expected seasonality that could signify that sites are indeed buying more raw materials. It includes prompting further investigation and potential adjustments to the decentralized procurement approach.
Question 2
Variance Analysis
It includes conducting variance analysis between quantities of raw materials ordered and actual quantities used in production that can highlight...
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