inventory-and-production-cycle-question-bank-solutions.pdf

lOMoARcPSD|13610137 Inventory and production cycle Question BANK Solutions Auditing (University of Limpopo) StuDocu is not sponsored or endorsed by any college or university Downloaded by Asiphe Mqhaba (asi...

lOMoARcPSD|13610137 Inventory and production cycle Question BANK Solutions Auditing (University of Limpopo) StuDocu is not sponsored or endorsed by any college or university Downloaded by Asiphe Mqhaba ([email protected])  lOMoARcPSD|13610137 TUTORIAL QUESTION 1 4.1 Identify the weaknesses in the above inventory count of Tumi (Pty) Ltd. 12 Communication skill: Clarity of expression 1 1. The date and time of the count is not decided upon. 1 2. No planning meeting is held before the inventory count. 1 3. The method of counting is not indicated i.e. how the inventory will be counted and 1 recorded tag system to be used. 4. Staff requirements are not specified and staff is not assigned to different functions. 1 5. There is no count controller that is appointed. 1 6. No preparation of the count area, tidying the area etc. 1 7. No drafting or sketch of the storeroom is done. 1 8. Pre-printed numerically sequenced count sheets are not used, which reflect the 1 inventory item number, category and location. 9. No inventory tags are used. 1 10. No written instruction for the count is provided to those involved in the count. 1 11. The count staff is not divided into teams of two. 1 12. Count teams are not provided with the floor plan of the storeroom. 1 13. Inventory is not counted twice. 1 14. Counted inventory is not indicated once counted. 1 15. Counters do not identify damage or obsolete inventory. 1 16. The count controller does not walk through the store room to make sure that all 1 inventory has been counted. (No spot checks are done) 17. Inventory sheets are not inspected making sure that first and second counts are 1 the same. 18. There is movement in the storeroom during the inventory count. 1 19. Inventory count sheets are not signed off. 1 20. No count instructions are circulated to the count team. 1 Available Marks 12 Maximum Marks 20 Communication skill: Clarity of expression 1 QUESTION 2 YOU ARE REQUIRED TO 3.1 Describe the weaknesses in internal controls of the inventory count 5 procedures evident from the scenario above. Communication skills: Clarity of expression 1 A floor plan of the warehouse was not sketched as part of the planning of the 1 count. The count procedures were not documented and communicated to inventory 1 count teams, as a result of which they were unaware of what was expected of them. Team members that were not present at the meeting may not be adequately 1 briefly as this will take place just before the count with no written instructions details on what needs to be done. Selecting a date for a meeting were not all members will not be available is a 1 demonstration of week planning. 180 Downloaded by Asiphe Mqhaba ([email protected])  lOMoARcPSD|13610137 There is no mentioning of tidying and packing the warehouse to allow for easy 1 identification of inventory. Inventory movement was allowed without any demarcated area where deliveries 1 would be kept. There was no count register to record the count sheets issued and the person to 1 whom the count sheet was issued to. There were no members from the warehouse who are knowledgeable about 1 inventory as part of the inventory team members. There is no mention of the inventory being counted twice. 1 Only one team counted the inventory once, and not two different teams. 1 No permanent ink was used for the recording of the inventory. 1 There was no cancellation of open spaces on the count sheets. 1 The team members did not sign the inventory count sheets. 1 No procedures were undertaken to identify damaged and /or obsolete inventory 1 items during the count. No spot checks were carried out by the inventory controller on actual inventory 1 counted and what is recorded on the inventory count sheets. No inspection of the numerical sequence of the pre-printed inventory count sheet 1 was performed by the inventory controller. Team members did not sign on a count register on returning the count sheets. 1 No reconciliation of the count sheets issued to the count sheets returned was 1 carried out by the inventory count controller. Available Marks 18 Maximum Marks 9 Communication skills: Clarity of expression 1 SOLUTIONS TO QUESTIONS IN GRADED QUESTION BOOK QUESTION 7 LEVEL 2 Weaknesses and recommendations [15 marks] WEAKNESSES RECOMMENDATIONS No formal production planning A formal production schedule needs to be takes place. The decision on what prepared based on sales and current inventory to manufacture is made by the levels. (1) sales director based on items which sold well the previous week. The current inventory levels are not taken into account. (2) 180 Downloaded by Asiphe Mqhaba ([email protected])  lOMoARcPSD|13610137 Raw materials can be taken from Raw materials should only be allowed to leave the warehouse with verbal the warehouse when a pre-numbered raw authorisation from the production material requisition has been made out by the foreman. (1) production department in twofold. (1) One copy should stay behind in the production department and one copy should be sent to the raw materials warehouse. (1) The requisition must be pre-numbered and include the quantity and description of the necessary items. The production foreman must authorise the requisition. (1) The warehouse must then make out a pre- numbered delivery note in twofold with the quantity and description of the inventory as well as the issue date on the issue note. (1) The head storeman must approve the issue note. One copy should stay behind in the warehouse and one copy should accompany the inventory. (1) A security guard at the door of the warehouse must check the physical inventory with the raw- material requisition and delivery note. (1) 180 Downloaded by Asiphe Mqhaba ([email protected])  lOMoARcPSD|13610137 WEAKNESSES RECOMMENDATIONS No perpetual inventory records are Perpetual inventory records should be kept. The monthly inventory count instituted under control of a responsible official does not compensate for the lack of other than the storemen. (1) perpetual inventory records. (2) The system should include all items including quantities and values. (1) The totals in the perpetual inventory records should be agreed with the general ledger on a regular basis. (1) The perpetual inventory records should be agreed with the physical inventory at the end of an inventory count. (1) Differences between the physical inventory and the perpetual inventory records should be followed up and then the perpetual inventory records should be adjusted if they are incorrect. (1) Inventory is ordered based on re- Purchase requisitions should be based on the order levels. Production levels can production schedule and quantities on hand as vary during the year and the indicated on the perpetual inventory records. (1) quantity ordered can thus be too few or too much for the current production need. (1) Available marks ; maximum marks QUESTION 8 LEVEL 2 Weaknesses and recommendations [13 marks] 1. Weaknesses in the inventory count procedures a) During the meeting, the team does not sketch out the floor plan of the warehouse. (1) b) The entire inventory balance must be counted as this is a year-end count and not a cycle count. (1) c) The inventory count procedures are not documented and communicated to the inventory count teams, who will be unaware of what is expected from them. (1) d) All inventory should be counted twice but by two different count teams, and not between the team members themselves. (1) e) Two different count sheets should be used by the different teams when counting the same inventory items. (1) Available marks ; maximum marks 2. Recommendations to the inventory count procedures a) Clearly demarcated areas should be made available for inventory being dispatched to customers and deliveries by suppliers on the day of the count. (1) 181 Downloaded by Asiphe Mqhaba ([email protected])  lOMoARcPSD|13610137 b) The composition of the count teams should be one person from the inventory warehouse who knows the inventory and another not working in the inventory warehouse. (1) c) An inventory count sheet register should be maintained by the inventory count controller for all inventory count sheets being used. (1) d) The inventory count sheets should be on pre-numbered stationery. (1) e) The inventory count controller does not: i. perform spot checks on inventory counted (1) ii. walk through the warehouse making sure all inventory is tagged (1) iii. compare the counts by the two count teams for variances (1) iv. reconcile the count sheets issued compared to what is returned (1) v. inspect whether all inventory items were counted. (1) f) Final inventory count sheets must be sent to the inventory administration clerk after a comparison is done between the two teams’ count sheets. (1) g) Count teams should not be made aware of the system quantity that needs to be counted. (1) Available marks ; maximum marks QUESTION 9 LEVEL 2 Recommendations [21 marks] 1. Ordering a) The pre-determined order levels should be reviewed regularly by a senior staff member so that no under- or overordering takes place. (1) b) Prior to requisitions being made, store or production staff should confirm that the inventory (gold or diamonds) is really needed. (1) c) A buying function should be established in order to ensure that inventory of the highest quality, and at the best prices, is ordered. (1) d) The company should have an approved suppliers list to which the buyer should refer when ordering. (1) e) Even when ordering from an approved supplier, the buyer should contact the supplier in order to confirm availability and delivery dates. (1) f) All requisition lists and purchase orders should be authorised by a senior staff member. (1) g) Before the order is placed, a supervisor or senior buyer should: i. compare the order to the requisition list for accuracy and authorisation (1) ii. review the order for suitability of supplier, reasonableness of price, quantity and the nature of the goods on order. (1) h) The ordering department should file the requisition lists sequentially and review frequently the files for requisitions that have not been cross-referenced to an order. (1) i) A copy of the order should be filed sequentially, checked and frequently cross- referenced to goods received notes in order to confirm that either: i. goods ordered have not yet been received, or 182 Downloaded by Asiphe Mqhaba ([email protected])  lOMoARcPSD|13610137 ii. the pending file of orders in the receiving area have been reviewed for long- outstanding orders.(1) 2. Receiving a) One of the stores staff (receiving clerk) should be given the task of: i. confirming inventory received(1) ii. preparing a goods received note based on the actual goods received as indicated on the delivery note.(1) iii. He/she should not be involved in any recording functions.(1) b) The receiving of goods should be designated to a goods receiving section that should be physically secure and have proper access controls.(1) c) A copy of the purchase order should be sent to the goods receiving section so that they can confirm that goods received have in fact been ordered before receiving the goods.(1) d) When receiving goods, the receiving clerk should inspect their quality and compare the quantity and the description of the goods to the delivery note.(1) e) Suppliers delivery notes and GRNs should be forwarded to the creditors clerk as evidence that inventory being paid for has been received.(1) f) On the transference of the goods to the store, the stores clerk should compare the physical goods to the goods received note, acknowledging receipt by signing the GRN.(1) 3. Storage a) Perpetual inventory records should be maintained so that physical counts can be compared to the theoretical records.(1) b) Receipts and issues of inventory should be entered into these inventory records.(1) c) Inventory counts should be carried out frequently by the stores staff, together with an independent person; shortages and surpluses should be reported to, and investigated by, management. Inventory cards should then be adjusted accordingly.(1) d) One of the stores staff (or an independent staff member) should be given the task of maintaining the perpetual inventory and should have no responsibility for either the receiving or the counting of inventory.(1) 4. Issues a) No issues should be made without a written issue note authorised by one of the production foremen.(1) b) A copy of each issue note should be forwarded to the costing or accounting department for production records.(1) 5. General a) Purchase orders and issue notes should be pre-numbered.(1) b) The sequence of all purchase orders and issue notes should be accounted for.(1) Available marks ; maximum marks [21 183 | P a g e Downloaded by Asiphe Mqhaba ([email protected])