100%(1)1 out of 1 people found this document helpful
This preview shows page 27 - 29 out of 35 pages.
. After semi-processed chocolate is produced from cocoa beans, the most importantstep in the manufacturing process consists of adding various flavouring ingredients to thesemi-processed chocolate and refrigerating the end product. Twenty four hours later, the productis cut and wrapped, placed in 24-unit display boxes, and sent to the warehouse for storage andshipping. If the chocolate bars remain in storage longer than three months, they are unwrappedand shipped to various surplus stores to be sold in blocks at discount prices. According to VL’sprocedures, if the net realizable value is lower than cost, inventory is valued at the lower amount.Internal audit. Tony Gianelli, CGA, has just been appointed chief audit executive for VL. Thisdepartment has three experienced internal audit teams to carry out audits at head office and inthe plants.Problem areas. This morning, the president of VL has mentioned to Tony that VL faces certainoperational problems. The following are of particular interest to the president:1. The company faced an inventory shortage last February and March for two productsmanufactured in the Toronto and Vancouver plants. This situation created somedissatisfaction among VL’s customers and was all the more embarrassing since thecompany had launched a $3.5 million advertising campaign in the fall of 2011 tospur public interest in these products, which had first been introduced in 2005.2. The company suffered significant losses because of production surpluses in theToronto, Halifax, and Laval plants during the last few months. Since some productshad been in storage for over three months, they had to be sold in blocks atdiscount prices.27
4. According to some rumours circulating in the purchasing department, one of thebuyers has a lifestyle far above what his salary could support. This buyer isresponsible for the management of several large procurement contracts. Thedirector of purchasing has been unable to supply greater detail on this matter butfinds the situation rather odd.5. The Vancouver and Laval plants appear to have more and more difficulty controllingproduction costs. In the last few months, significant variances from standard costshave appeared in the use of raw materials and in labour productivity.6. The significant increase in advertising expenditures during 2011 and the beginningof 2012 does not appear to be yielding the results anticipated. Sales for 2011 havedecreased and VL’s market share has dropped by more than 10%. The marketing