Royal Meat Processing Company buys and processes livestock for sale to supermarkets. In connection with the audit

Question:

Royal Meat Processing Company buys and processes livestock for sale to supermarkets. In connection with the audit of the company's financial statements, you have prepared the following notes based on your review of inventory procedures:

1. Each livestock buyer submits a daily report of his or her purchases to the plant superintendent. This report shows the dates of purchase and expected delivery, the vendor and the number, and weights and type of livestock purchased. As shipments are received, any available plant employee counts the number of each type received and places a check mark beside this quantity on the buyer's report. When all shipments listed on the report have been received, the report is returned to the buyer.

2. Vendors' invoices, after a clerical review, are sent to the appropriate buyer for approval and returned to the accounting department. A disbursement voucher and a check for the approved amount are prepared in the accounting department. Checks are forwarded to the treasurer for signature. The treasurer's office sends signed checks directly to the buyer for delivery to the vendor.

3. Livestock carcasses are processed by lots. Each lot is assigned a number. At the end of each day a tally sheet reporting the lots processed, the number and type of animals in each lot, and the carcass weight is sent to the accounting department, where a perpetual inventory record of processed carcasses and their weights is maintained.

4. Processed carcasses are stored in a refrigerated cooler located in a small building adjacent to the employee parking lot. The cooler is locked when the plant is not open, and a company guard is on duty when the employees report for work and leave at the end of their shifts. Supermarket truck drivers wishing to pick up their orders have been instructed to contact someone in the plant if no one is in the cooler.

5. Substantial quantities of by-products are produced and stored, either in the cooler or elsewhere in the plant. By-products are initially accounted for as they are sold. At this time the sales manager prepares a two-part form: one copy serves as authorization to transfer the goods to the customer, and the other becomes the basis for billing the customer.

Required:

For each of the numbered notes 1 to 5 above, state the weaknesses, if any, in the present inventory procedures and your suggestions, if any, for improvement.

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