Sit Down Co (Sit Down) manufactures custom made furniture and sells various types of sofas, couches and loveseats. The company's closes its financial statements every 31 December. The company purchases its raw materials from a wide range of suppliers. When production supervisors require raw materials, they complete a requisition form and this is submitted to the purchase ordering department. Requisition forms do not require any authorization and no reference has to be made to the current inventory levels of the materials being requested. Staff in the purchase ordering department use the requisitions to raise sequentially numbered purchase orders based on the approved suppliers list, which was last updated 24 months ago. The purchasing director authorizes the orders prior to these being sent to the suppliers. When the goods are received, the warehouse department verifies the quantity and quality of the materials received to the suppliers. They complete a sequentially numbered Goods Received Note (GRN) and send a copy of the GRN to the finance department. Purchase invoices are sent directly to the purchase ledger clerk, who stores them in a manual file until the end of each week. He then inputs them into the purchase ledger using batch controls and gives each invoice a unique number based on the supplier code. The invoices are reviewed and authorized for payment by the finance director, but the actual payment is only made 60 days after the invoice is input into the system a. Explain several inherent limitations in the above cycle system. b. Evaluate any FOUR (4) deficiencies in the purchasing system of Sit Down Co and briefly explain the possible effect of each deficiencies identified. Suggest also the recommendations to overcome those deficiencies
Sit Down Co (Sit Down) manufactures custom made furniture and sells various types of sofas, couches and loveseats. The company's closes its financial statements every 31 December. The company purchases its raw materials from a wide range of suppliers.
When production supervisors require raw materials, they complete a requisition form and this is submitted to the purchase ordering department. Requisition forms do not require any authorization and no reference has to be made to the current inventory levels of the materials being requested. Staff in the purchase ordering department use the requisitions to raise sequentially numbered purchase orders based on the approved suppliers list, which was last updated 24 months ago. The purchasing director authorizes the orders prior to these being sent to the suppliers.
When the goods are received, the warehouse department verifies the quantity and quality of the materials received to the suppliers. They complete a sequentially numbered Goods Received Note (GRN) and send a copy of the GRN to the finance department. Purchase invoices are sent directly to the purchase ledger clerk, who stores them in a manual file until the end of each week. He then inputs them into the purchase ledger using batch controls and gives each invoice a unique number based on the supplier code. The invoices are reviewed and authorized for payment by the finance director, but the actual payment is only made 60 days after the invoice is input into the system
a. Explain several inherent limitations in the above cycle system.
b. Evaluate any FOUR (4) deficiencies in the purchasing system of Sit Down Co and briefly explain the possible effect of each deficiencies identified. Suggest also the recommendations to overcome those deficiencies.
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