Report for Bill Bragan Regarding Bobby Bully Project, Leased Equipment, Separate Recording of Us Sales, and Hiring an Internal Auditor

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Based on the $7,250 payment over 60 months the total payments would be $435,000, and if BML intends to purchase the equipment at the end of the leasing period, it will pay an extra $10,000. Therefore, to acquire the equipment BML will have to pay $445,000 in total, However, if the company decided to purchase the equipment instead of leasing it, it would only pay the list price of $300,000, which would save BML $145,000.

Separate recording of US sales

As BML has recently escalated its sales in the US it is important for the company to understand the market trends and customer demand in the US. By recording the sales separately, the company would be able to track the sales performance, which will help to analysis customer preferences and identity the potential growth opportunities in that market.

Also, with the foreign exchange fluctuations between Canada and the US it is important that BML maintain separate records for such fluctuations. Base on the given information, almost 30% of the sales are coming from the US. This means that one third of BLM’s profits will be influenced by the fluctuation of exchange rates. If BLM does not separate the sales done outside Canada, its sales could appear higher if the foreign currency depreciates against the Canadian dollar.

Hiring an Internal Auditor

An internal auditor is responsible for looking at the internal control risks facing a company, which include both financial and non-financial elements. They are responsible for making recommendations on how to manage these risks. However, external auditors are primarily focused on the financial position and risks associated with a company's finances. Although external auditors evaluate the internal controls, it only does so on an annual basis, whereas a internal auditor will evaluate them on a continuous basis. With BML rapidly expanding from a small manufacturing company to a medium size, internal controls are essential.

Recommendations

Bobby Bully Project

Based on the adjusted profitability analysis (Exhibit 2), option two got the highest projected profit of $21,000. It is recommended that BML introduce the new product with option 2, as it will result in the highest profit.

Leased Equipment

Neither leasing or purchasing the equipment will ease the tenuous relationship with the banks, therefore in terms of cost BML should purchase the equipment at the list price.

Separate recording of US sales

BML should keep separate records of US sales to better monitor its performance.

Hiring an Internal Auditor

It is recommended that BML hire an internal auditor to better manage its internal controls and provide recommendations for improvements.

Action Plan

Appendices

Exhibit 1

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Exhibit 2

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Exhibit 3

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