Reference no: EM132593376

Willon Manufacturing Company (WMC) is one of the most important producers of carpets and floor coverings in Canada. It had sales of over $450 million last year and made a profit of $52 million. WMC operates six plants, each manufacturing different products.

The president of the company, Yves Deschamps, called Rhonda Van Nus, the director of the internal audit department, into his office yesterday and told her the following:

• Rhonda, Do not know what's going on in our Toronto plant. I reviewed their costing reports this morning, and they are seriously out of line with their targets. They seem to have major problems in controlling their use of raw materials. You know that labour costs are only 10% of total manufacturing costs and are not a concern. I also looked at their inventory reports, and they have enough raw materials for six months. We cannot afford to finance such waste. They put a new inventory management system in place last year, and I thought it was working well.
• Also spoke with Janet Grace, our vice-president of marketing, who informed me that she had recently received numerous complaints from customers about the poor quality of the products manufactured in Toronto. You know how competitive our industry is; we can easily lose customers for poor product quality.
• Want you and your audit team to fly to Toronto as soon as possible to identify the problems there - in particular the poor control over use of raw material. But before you leave, please write me a memorandum outlining the possible causes of these problems and your proposed audit approach. This will enable me to understand the situation better while waiting for the results of your audit.

Required

Question 1: Assume the role of Rhonda Van Nus and prepare the memo requested by the president. For the purposes of this case, in your memo, list the possible causes of problems for raw material usage. Outline your audit scope and approach for raw material usage, and identify the systems and practices to be reviewed in this area.