Lily Window Glass Co. (Lily) is a glass manufacturer that operates from a large production facility, where it undertakes continuous production 24 hours a day, seven days a week. Also on this site are two warehouses where the company’s raw materials and finished goods are stored. Lily’s year end is December 31.

Lily is finalizing the arrangements for the year-end inventory count, which is to be undertaken on December 31, 2023. The finished windows are stored in 20 aisles of the first warehouse. The second warehouse is for large piles of raw materials, such as sand, used in the manufacture of glass. The following arrangements have been made for the inventory count.

The warehouse manager will supervise the count as he is most familiar with the inventory. There will be 10 teams of counters and each team will contain two members of staff, one from accounting and one from the manufacturing department. None of the warehouse staff, other than the manager, will be involved in the count.

Each team will count an aisle of finished goods by counting up and then down each aisle. As this process is systematic, it is not felt that the team will need to flag areas once counted. Once the team has finished counting an aisle, they will hand in their sheets and be given a set for another aisle of the warehouse.

In addition to the above, to assist with the inventory counting, there will be two teams of counters from the internal audit department and they will perform inventory counts.

The count sheets are sequentially numbered, and the product codes and descriptions are printed on them but no quantities. If the counters identify any inventory that is not on their sheets, they are to enter the item on a separate sheet, which is not numbered. Once all counting is complete, the sequence of the sheets is checked and any additional sheets are also handed in at this stage. All sheets are completed in ink.

Any damaged goods identified by the counters will be too heavy to move to a central location; hence they are to be left where they are but the counter is to make a note on the inventory sheets detailing the level of damage.

As Lily undertakes continuous production, there will continue to be movements of raw materials and finished goods in and out of the warehouse during the count. These will be kept to a minimum where possible.

The level of work in process in the manufacturing plant is to be assessed by the warehouse manager.

It is likely that this will be an immaterial balance. In addition, the raw materials quantities are to be approximated by measuring the height and width of the raw material piles. In the past this task has been undertaken by a specialist; however, the warehouse manager feels confident that he can perform this task.

Required For the inventory count arrangements of Lily Window Glass Co.:

a. Identify and explain six deficiencies.

b. Provide a recommendation to address each deficiency.