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KULASA COMPANY
KULASA is one of the leading shoe manufacturing company which is based in the shoe capital city of NCR, Marikina City. Although, it caters to all shoes both for men and women, its core business is for ladies' shoes. The company has been in the business for almost a decade now and its roots can be traced to a backyard operation in the house of its owner, Mrs Nicholas, a fashion icon herself. It started with just 5 personnel under its employ. Designs of the shoes is mostly done by Mrs Nicholas which are more appropriate for the working class. Gradually, the company has been gaining popularity due to the beautiful design of the shoes. The company started with one store but over the years, it put stores in other parts of Marikina City, until it started selling its products in big malls in NCR. Due to the growth of the company in a fast phase, and to be able to increase the much needed additional capital to finance its growth, KULASA transitioned from a proprietorship to a corporation. The company did not have difficulty attracting investors as the KULASA brand has been gaining popularity among the working class and has already established a market niche.
Mrs. Nicholas, continue to be in full charge in designing the shoes. Competition in the market has becoming very tough as new competitors emerge. However, Mrs Nicholas is very confident that her brand will survive the competition and stick to its old design with little improvements. During the recent past two years, the financial performance of the company's selected accounts are as follows:
The deteriorating financial performance of the company is partly due to the pandemic which crippled most of the businesses. However, even prior to pandemic, the company has been experiencing poor financial performance. Increase in competition due to emergence of new fashion shoes has been hurting the company's sales performance, eventually its bottom line. Management is completely aware of this but did not put any safety nets to avert the effect of slowly declining sales as they are confident that they will bounce back once the pandemic is over. Mrs Nicholas is adamant in changing the design of its shoes despite the stiff competition as she is confident that it has already establish a market niche for this.
Some of the internal processes of the company are as follows:
SALES AND MARKETING
Customers' orders are received by sales clerk and is encoded in a Customer Order Form (COF) taking note of the description and quantity. The COF is then forwarded to warehouse for checking the availability and preparation of the goods being ordered. Once the availability of the order is confirmed, the sales staff calls back the customer informing the latter of the expected delivery date.
WAREHOUSE
Warehouse staff prepares the goods based on the COF forwarded by the Sales and Marketing. The warehouse staff coordinates with the Logistics Dept for the delivery schedule. Warehouse replenish raw materials on a monthly basis based on the actual issuance during the month. Based on the actual issuance, he prepares a Purchase Requisition and forwards it to Purchasing Department for procurement.
CREDIT AND COLLECTION
Due to pandemic, there has been slow in collections as customers are having financial difficulty. 70% of the accounts receivable are already past due. However prior to pandemic, past due accounts are already filing up due to poor credit ratings of some of its customers. The company grants credit line to a customer endorsed by the head of the sales and marketing department.
Required:
As an operation auditor, evaluate the overall performance of the company, taking notes of some loopholes on its processes. What do you think should the company do to improve its financial performance.