Dairy Products (DP) is a privately owned company operating a network of small supermarkets specializing in selling dairy-related food products. Recognizing the significance of daily internal controls in optimizing resource utilization and overall profitability, DP has emphasized their importance. Nevertheless, DP currently maintains limited oversight of inventory management, placing trust in local managers to exercise sound judgment in the procurement, sales, and inventory oversight, all of which are managed locally. Pricing strategies are primarily structured on a cost-plus model, with local supermarket managers having the autonomy to adjust prices as needed to remain competitive within their respective regions. Each individual supermarket operates on a stand-alone computer system, where monthly financial reports are generated under the direct supervision of Supermarket Managers. These statements are sent to the head office on a quarterly basis. Currently, there is no integrated system for inventory control, sales, or procurement, and regular inventory counts are not conducted. Management reports are produced semi-annually. As supermarket traffic has increased in recent years, alongside a growing number of supermarket locations, the absence of a formal staff recruitment policy and inadequate training measures have led to a decline in staff service quality. In response, senior management at DP is now committed to investing in more contemporary and comprehensive systems and practices. (a) Describe the problems that you might expect to find at dp resulting from poor internal controls. (b) Make four recommendations to the senior management ofd for the improvement of internal controls, and explain the advantages and disadvantages of each recommendation. (c) Explain the impact that the internal control environment is likely to have on your audit approach. (d) Briefly discuss the benefits of a report to management at the interim stage of an audit.

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter2: The Purchasing Process

Section: Chapter Questions

Problem 1GPE

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Dairy Products (DP) is a privately owned company operating a network of small supermarkets specializing in selling dairy-related food products. Recognizing the significance of daily internal controls in optimizing resource utilization and overall profitability, DP has emphasized their importance. Nevertheless, DP currently maintains limited oversight of inventory management, placing trust in local managers to exercise sound judgment in the procurement, sales, and inventory oversight, all of which are managed locally. Pricing strategies are primarily structured on a cost-plus model, with local supermarket managers having the autonomy to adjust prices as needed to remain competitive within their respective regions. Each individual supermarket operates on a stand-alone computer system, where monthly financial reports are generated under the direct supervision of Supermarket Managers. These statements are sent to the head office on a quarterly basis. Currently, there is no integrated system for inventory control, sales, or procurement, and regular inventory counts are not conducted. Management reports are produced semi-annually. As supermarket traffic has increased in recent years, alongside a growing number of supermarket locations, the absence of a formal staff recruitment policy and inadequate training measures have led to a decline in staff service quality. In response, senior management at DP is now committed to investing in more contemporary and comprehensive systems and practices. (a) Describe the problems that you might expect to find at dp resulting from poor internal controls. (b) Make four recommendations to the senior management ofd for the improvement of internal controls, and explain the advantages and disadvantages of each recommendation. (c) Explain the impact that the internal control environment is likely to have on your audit approach. (d) Briefly discuss the benefits of a report to management at the interim stage of an audit.

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