Bowlby Ltd is a manufacturer of small tools including screwdrivers, hammers, and plyers with a plant in Goulburn NSW. Competition from imported goods in this industry has become increasingly fierce, yet Bowlby has traditionally chosen to address these competitive pressures by differentiating its products from imported rivals by focusing on quality rather than cost. Recently, Bowlby has pursued a new manufacturing process that purports to maintain quality while reducing manufacturing time and therefore costs. Unfortunately, there has been an increased number of complaints from customers which could be attributed to a potential drop in quality.

Using analytical procedures to assess risk at Zing Ltd

Zing Ltd manufactures work boots out of its factory in Bendigo, Victoria. Jack has calculated the following ratios for you to discuss.

	Industry Average		Zing Ltd
	2019	2018	2019	2018
Current Ratio	2.5	3	2.6	2.2
Receivables turnover	6.1	5.7	6	7.2
Inventory turnover	4.8	4.3	4.2	5.1
Return on total assets	6%	5%	9%	8%
Net profit ratio	0.05	0.05	0.03	0.03
Gross margin	0.23	0.25	0.23	0.20

Assessment of internal controls around purchases and payments cycle at Evans Ltd.

Jack has completed his assessment of internal controls around purchase payments to suppliers at Evans Ltd, a small manufacturer of custom outdoor timber furniture. Jack has identified the following processes in relation to purchases and payments:

Evans has the following staff: a warehouse manager; four machinery operators (who do the actual manufacturing of the outdoor furniture); an accounts payable clerk; an accounts receivable clerk; a banking clerk; an administrative assistant; and five directors, one of whom runs the business as a whole on a day to day basis.

All operations occur at their location in Bathurst, NSW.

When stores of raw materials are visibly running low as assessed by the machinery operators, they tell the warehouse manager and he then initiates the order of goods. The process for ordering goods begins with the warehouse manager making phone calls to a range of approved suppliers to obtain quotes. Once a list of quotes has been obtained, the order will then be lodged via the phone, with confirmations of the order being received by email. The confirmation email is kept by the warehouse manager.

Once the confirmation email is received, the warehouse manager completes a purchase order in duplicate. One copy is kept at the warehouse, while the other is sent to the accounts payable clerk and is filed by date.

When the goods arrive at the warehouse, the warehouse manager checks the goods received match the delivery note which comes attached to the goods, and signs the delivery note. There are two copies of the delivery note – one is kept by the delivery company, the other is kept by the warehouse manager.

The warehouse manager photocopies the delivery note and forwards the copy to the accounts payable clerk, who performs the journal entry to the creditor’s ledger for the amount on the delivery note. The delivery note is stamped/signed as ‘entered' and filed by the supplier.

Tests of control for payroll at Bryer Ltd

Jack has identified a range of controls over payroll at Bryer Ltd, which operates a hotel in Armidale, NSW. There is a significant degree of variability in the staffing at Bryer, given seasonal variations around tourism. Wages and salaries are the major expense for Bryer, especially in summer when as many as 30 additional staff can be employed. Jack has indicated that he wishes to rely on the internal controls around payroll for the audit and has identified the following features of the system:

The operations manager at Bryer keeps a detailed weekly roster on a spreadsheet which has the following details:

• -Employee name
• -Position of employment (eg, bar/kitchen staff; cleaner, etc)
• -Hourly rate
• -Days rostered for the week;
• -Additional amounts to be paid (meal allowances, uniform expenses, etc).

Every employee's supervisor is required to sign a physical copy of the excel sheet every day to provide evidence that the hours were worked as set out on the spreadsheet. If there are any changes or discrepancies this is recorded on a separate ‘variation form’ which is co-signed by the employee and supervisor.

The excel spreadsheet and the various forms are forwarded to the payroll officer every Thursday and are used as the basis for the payroll.

Answer rating: 100% (QA)

1 Bowlby Ltd has adopted new Manufacturing process which is definitely give better quality of product But company never should forget the time shall be given for its production In this case lot of com... View the full answer