- 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 additional analyses.
Document in the space provided the method you used to create your 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
Ortho Inc. is a medical device manufacturer based in San Diego, California. The company produces and sells custom-made knee replacement 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 customer relationships, 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 by 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 identifier 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 identifier 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 § for sales) TransNumber “ Identifier for orders and sales SiteCode o ‘Transaction site (one of five locations) Manager O Employee associated with the transaction EntitylD O Supplier/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/receiving 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 abbreviations) 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 identifier 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 (supplier/customer/Ortho, Inc.) identifier 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 rr — 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 2024 2025 (audited) (unaudited) Net Sales $913 $854 Costof Sales 579 542 Gross Profit 334 312 Research and development 57 59 Selling, general and administrative 191 196 Recall charges, net of insurance proceeds 5 5 Intangible asset amortization 3 2 Total operating expenses 256 262 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. Currently, 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. 2025 2023 2024 2025 Purchase Orders Sales Orders Ortho Inc. Correlation between Purchases and Sales Purchase Orders Sales Orders Purchase Orders 1 Sales Orders 0.750363942 1 1. How do these analyses help evaluate if the sites are purchasing more raw 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 your 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.