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56 CHAPTER 4 SALES/COLLECTION BUSINESS PROCESS

process. For this to happen, the Sales/Collection process must include at least one eco-
nomic event that transfers out the goods and services (i.e., a decrement event). This is the
sale event. It must also include at least one economic event that transfers in the cash (i.e.,
an increment event). This is the cash receipt event. The Sales/Collection process for all
firms is similar regardless of whether the firm is engaged in manufacturing, in service, or
in retail.
Labor is typically not tracked and matched to the revenue-generating activity since
labor costs are normally aggregated into a selling, general, and administrative expense and
tracked in the payroll cycle. One exception to this is in the case of service providers, where
labor takes the place of inventory. Other exceptions include companies that use delivery
serVIces.

Tragg's Custom Surfboards

Background Tragg's Custom Surfboards is located at 8713 Montauk Drive, La Selva
Beach, CA 95076. Their telephone number is (831) 555-1513; their fax number is (831)
555-1613. Tragg's Custom Surfboards both manufactures and sells surfboards and surfing
equipment. Dan Tragg began shaping, designing, and manufacturing his own surfboards
25 years ago. He soon discovered that there was a demand for them among his friends and
acquaintances. He started selling them casually and ultimately founded the business in
1988. Initially, his boards were sold through a few select dealers. As demand grew how-
ever, he set up a Web site and opened his own store. The store now carries a stock of surf-
boards and Dan continues to fill custom orders.

Model the Revenue Cycle Using REA As we did in Chapter 1 for Cherokee
8
Art and Antique Store, we need to model the revenue cycle using the REA topology. Since
all sales are final, we will collapse the custom order event into the sales event for the sake
of simplicity. Sales begin with the customer coming into the store or can commence
through an e-mail or telephone call from the customer. Tragg's requires a 50 percent
deposit before starting custom work and this deposit is nonrefundable. Custom orders
usually take 4 to 5 weeks to complete.
Whether a custom order or a sale from existing stock, the customer has a choice
between four basic board styles: Egotist, Imposer, Nice Devil, or King Creator. The
customer can also choose between two fins: single fin or glassed-on fin. Coloring is
offered in opaque or transparent. The customer can choose his or her own pigment for
the board by sending in a color chip obtained from the paint section of their local hard-
ware store.
Pricing is largely dependent upon the length of the board plus any extra features that
are requested. For example, a board up to 6'11" begins at $475. Anything longer than that
goes up $25 in price for every 6 inches requested. All boards come with certain standard
features, depending upon the board style chosen. In addition, the customer can add only

8 Tragg's Custom Surfboards' has more than just the economic increment and decrement events occurring. They
have a marketing event (i.e., the Web site and the inquiries it generates). Tills is called the instigation event. In
reality, there is also a mutual commitment event (i.e., the custom orders). For simplicity sake, however, we
have chosen not to model these in this example.