Question

A manufacturing company allows employees to purchase, at cost, manufacturing materials such as metal and lumber, for personal use. To purchase materials for personal use, an employee must complete a materials requisition form which then must be approved by the employee's immediate supervisor. The assistant cost accountant then charges the employee an amount based on the manufacturing company's net purchase cost.

An employee, who happens to be the assistant cost accountant, is in the process of replacing a deck on his home and has requisitioned lumber for personal use, which has been approved in accordance with company policy. In computing the cost of the lumber, the employee (the assistant cost accountant) reviewed all the purchase invoices for the past year. The employee then used the lowest price to compute the amount due for the company for the lumber.

Discuss whether this is a good company policy, include if there are proper internal controls in place. Discuss if the assistant cost accountant behaved in an ethical way. Discuss if there should be any type of corrective action. How should the company management handle this situation? Feel free to share any situations that sound similar in the real world.

Answer 1

Answer:

The policy needs internal controls to check expected misuse by the workers. To begin with, the organization shoud obviously define the cost at which materials will be moved to the requested representatives, i.e., the cost flow presumption ought to be unmistakably defined for the strategy to be viable.

Here it appears that the best possible internal control isn't to be followed on the grounds that reason being is straightforward that there is no rule in regards to utilization and acquisition of materials by the workers. Likewise, the cost accountant itself is buying the item and is answerable for determining the expense of the equivalent, consequently we can plainly observe that there is an absence of vigorous internal control framework.

Second, the worker ordering for materials ought not be equivalent to the representative setting up the invoice subsequent to moving the materials as it could prompt amuse of the provision.

The associate cost accountant has obviously abused the morals by misusing his situation to increase an unfair for advantage by billing lower cost to himself.He/she clearly didn't act in moral way since he/she purposely found out the lower cost than the real cost, this is an unethical conduct.

Truly, there should be a corrective activity, above all else there must be a legitimate rules in regards to such buy likewise the there must be one uniform cost to be charged by the organization over all the representatives independent of the current cost this will help in taking care of the circumstance of wrong estimation of the expense. There must be powerful internal control framework that will check whether workers are not misusing this office given to them.