A manufacturing company allows employees to purchase, at cost, manufacturing mat

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. Follow the minimum requirements for discussion board posts located in the general discussion area. Recall, those are the minimum requirements, more posts are always encouraged.

Explanation / Answer

The policy which the company follows is not a good policy.

The company can give referral codes for its employees to get the materials for their personal use from the direct supplier instead of letting them take the material from the inventory of the company.

Inventory is one of the sensitive items in the manufacturing process.

Due to such policies, the employees may collude among themselves to make their personal profit out of it leading a loss to the company.

Even in this policy, there should be proper internal controls implemented.

In case assistant cost accountant is purchasing for his personal use, the net purchase costs of the material so purchased is to be charged by a person other than the assistant cost account. If that is not the case, the assistant would make personal gains by using the least net purchase cost for the company regardless of the inventory method the company follows.

Management should employ Internal check in this case. If possible, this policy is not to be followed.

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