Bern Fly Rod Company is a small manufacturer of high quality graphite fly-fishing rods. It sells its products to fly-fishing shops throughout the United States and Canada. Bern began as a small company with four salespeople, all family members of the owner. Because of the high popularity and recent growth of fly-fishing, Bern now employs a seasonal, nonfamily, sales force of 16.The salespeople travel around the country giving flycasting demonstrations of their new models to fly-fishing shops. When the fishing season ends in October, the temporary salespeople are laid off until the following spring.Once the salesperson takes an order, it is sent directly to the cash disbursement department, where commission is calculated and promptly paid. Sales staff compensation is tied directly to their sales (orders taken) figures. The order is then sent to the billing department, where the sale is recorded, and finally to the shipping department for delivery to the customer. Sales staff are also compensated for travel expenses. Each week they submit a hard-copy spreadsheet of expenses incurred to the cash disbursements clerk. The clerk immediately writes a check to the salesperson for the amount indicated in the spreadsheet. Bern’s financial statements for the December year end reflect an unprecedented jump in sales for the month of October (35 percent higher than the same period in the previous year). On the other hand, the statements show a high rate of product returns in the months of November and December, which virtually offset the jump in sales. Furthermore, travel expenses for the period ending October 31 were disproportionately high compared with previous months.Analyze Bern’s situation and assess any potential internal control issues and exposures. Discuss some preventive measures this firm may wish to implement.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Bern Fly Rod Company is a small manufacturer of high quality graphite fly-fishing rods. It sells its products to fly-fishing shops throughout the United States and Canada. Bern began as a small company with four salespeople, all family members of the owner. Because of the high popularity and recent growth of fly-fishing, Bern now employs a seasonal, nonfamily, sales force of 16.
The salespeople travel around the country giving flycasting demonstrations of their new models to fly-fishing shops. When the fishing season ends in October, the temporary salespeople are laid off until the following spring.
Once the salesperson takes an order, it is sent directly to the cash disbursement department, where commission is calculated and promptly paid. Sales staff compensation is tied directly to their sales (orders taken) figures. The order is then sent to the billing department, where the sale is recorded, and finally to the shipping department for delivery to the customer. Sales staff are also compensated for travel expenses. Each week they submit a hard-copy spreadsheet of expenses incurred to the cash disbursements clerk. The clerk immediately writes a check to the salesperson for the amount indicated in the spreadsheet. Bern’s financial statements for the December year end reflect an unprecedented jump in sales for the month of October (35 percent higher than the same period in the previous year). On the other hand, the statements show a high rate of product returns in the months of November and December, which virtually offset the jump in sales. Furthermore, travel expenses for the period ending October 31 were disproportionately high compared with previous months.

Analyze Bern’s situation and assess any potential internal control issues and exposures. Discuss some preventive measures this firm may wish to implement.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Break-even Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education