Question Tag: Cost reduction

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  • 10 Marks

BMIS – Aug 2022 – L1 – Q3a – Business and organisational structure

Explains the benefits an organization would gain from integrating all of its operations.

Integrating the operations of an organization is a decision that many find difficult to make as it is possible to find architectures that adapt to different requirements. Despite this, business integration is a necessity because of the success and benefits it brings to corporations and businesses.

Required:

Explain FIVE (5) benefits an organization would gain from integrating all of its operations.

Benefits of Integrating Organizational Operations:

  1. Cost Reduction:
    Organizations that integrate all operations into a single system can reduce their operational costs by eliminating duplication of efforts and resources.
    (2 marks)
  2. Operational Efficiency:
    Integration facilitates operational efficiency by ensuring that the functional areas with the required expertise are used to support other areas where such services may be needed.
    (2 marks)
  3. Organizational Harmony:
    Integration ensures peace and harmony within the organization, as all functional areas recognize their interdependence for excellent performance.
    (2 marks)
  4. Competitive Advantage:
    Effective integration can lead to competitive advantage, as the organization can conduct its operations better than its competitors, gaining an edge in the market.
    (2 marks)
  5. Better Customer Service:
    Integrated operations allow organizations to offer excellent services to their customers, with employees willing to go the extra mile to meet customer needs.
    (2 marks)
  • 10 Marks

BMIS – April 2022 – L1 – Q3a – Operations strategy

Suggest five benefits a company would derive from adopting the Just-In-Time (JIT) inventory system.

You are the Accounts officer for Unimech Garages, a company that provides mobile vehicle repairs for faulty vehicles on the Accra – Kumasi and Accra – Takoradi highways. The company has adopted the Just-In-Time (JIT) inventory control system for its operations. The JIT inventory control system was adopted because all repairs performed vary from vehicle to vehicle, and there is no need to stock any spare parts since the repair team has no idea of the next repairs to be conducted as well as the type of spare parts they would require. Again, this inventory system was implemented to prevent employees from committing the offence of selling stocked spare parts for their individual gains.

Required:
Suggest FIVE (5) benefits the company would derive from this inventory system. (10 marks)

Benefits of Just-In-Time (JIT) Inventory System:

  1. Appropriateness: The adoption of the JIT inventory system ensures that the company receives and dispatches the appropriate spare parts and items as required, minimizing unnecessary stockpiling.
  2. Cost Reduction: The company benefits from reduced inventory and setup costs because spare parts are only ordered when needed, avoiding the costs associated with holding excess inventory.
  3. Service Quality: The quality of services delivered to customers improves because only high-quality parts are ordered to fix the problems of drivers and vehicle owners, ensuring that repairs are effective.
  4. Waste Control: The adoption of the JIT system helps eliminate waste and excess inventory that are not required, leading to more efficient operations and reduced costs.
  5. Eliminate Customer Delays: The system ensures that services delivered to customers are as fast as possible, as spare parts required for operations are available as and when needed, reducing delays.
  6. Emphasis on Value Addition: The company’s adoption of the JIT system ensures the elimination of non-value-added activities such as the internal movement of spare parts, focusing resources on activities that directly contribute to customer satisfaction.
  7. Inventory Security: JIT reduces the risk of employees selling stocked spare parts for personal gain, as inventory is minimized and controlled more effectively.
  • 8 Marks

BMIS – May 2016 – L1 – Q6b – Operations strategy

Explain Just-in-Time inventory control and state four advantages of its use in a manufacturing company

i) Explain Just-in-Time inventory control.
ii) State FOUR advantages of its use in a manufacturing company.

i) Explanation of Just-in-Time Inventory Control:
Just-In-Time (JIT) refers to an inventory control system that schedules materials to arrive just when they are required for use.
OR
JIT refers to the production system in which processing and movement of materials and goods occur just as they are needed, usually in small batches.
(2 marks)

ii) Advantages of Just-in-Time Inventory Control:

  1. Lowers Cost: The use of JIT systems lowers the cost of investment required in all forms of inventory control.
  2. Space Savings: JIT systems facilitate the saving of space that would be used to keep stock for long periods before they are used.
  3. Customer Satisfaction: There is greater customer satisfaction resulting from higher quality and better state of parts and products for manufacturing.
  4. Avoids Waste: JIT systems help the company to reduce waste and inefficiency because materials are requested and delivered per usage.
  5. Quick Response: The flexibility of JIT and the ability to supply materials in small batches enable companies to respond more quickly to market changes.
  6. Reduces Obsolescence: JIT reduces inventory obsolescence of materials because of reduced inventory.
  • 10 Marks

AAA – May 2019 – L3 – Q4a – Internal audit and outsourcing, Public sector audi

Discuss the effects of outsourcing government payroll and analyze the auditor's duties when such outsourcing is implemented.

The Minister of Finance in his mid-year review of the national budget hinted that government payroll may be outsourced. The main reason being the guarantee of cost. In April 2017, a bio-metric exercise conducted by SSNIT ensured that 27,000 ghost names were identified and removed from government payroll. In the same year, 23,000 ghost names were removed as a result of a headcount of government employees. Resulting from these exercises, GH¢250 million was saved in 2017.

Required:

i) Discuss the effects of payroll outsourcing in this stance. (5 marks)

ii) Analyze what the service user auditor must do in the course of his duties when the outsourcing programme is implemented. (5 marks)

a) i )

Positive Effects

In view of the tremendous savings being achieved as a result of the removal of ghost names, it is believed that outsourcing government payroll will inure to the benefit of the government. Additionally, the government can achieve the following:

  • Reduction in the cost of preparing the payroll as there will not be the need to engage more people and sophisticated software programs to work on the payroll.
  • Payroll will be prepared by specialists, which will not have been the case with the staff of government departments.
  • The service company may provide the government a comfort zone by giving indemnity in the event of problems arising.
  • It will help the government to focus on its core services of offering social services to the public.
  • It may reduce payroll fraud.

Negative Effects

  • Staff may be laid off as not all the employees may be maintained. This may result in redundancy, which may cost the government.
  • Ghost names may still persist as dismissals and terminations may not be advised promptly.
  • If the government fails, it may have to pay redundancy costs for dismissals, and workers may go to court.

a) ii) 

The user auditor must do the following:

  • Understand the transaction by examining all the contracts and identify potential risks.
  • Evaluate all the controls at the user entity that relate to the service organization and determine whether that gives the auditor sufficient understanding to provide a basis for assessing risks of material misstatement from the side of the government. If the auditor concludes that this is insufficient, he must carry out one of the following activities:
    • Obtain Type 1 or Type 2 report from the service organization (if available).
    • Contact the service organization to get specific information (with permission).
    • Visit the service organization and perform procedures to obtain information (with permission).
    • Use another auditor to perform procedures at the service organization (with permission).

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