Question

XYZ company manufactures custom made bed and its year end is 30 June. The company purchases its raw materials from a wide range of suppliers. Below is a description of XYZ's purchasing system.

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 authorisation and no reference is made to the current inventory levels of the materials being requested. Staff in th purchase ordering department uses the requistions to raise sequentially numbered purchase orders based on the approved supplier list, which was last updated 24 months ago. The purchasing director authorises the orders prior to these being sent to the suppliers.

When the goods are received, the warehouse department verifies the quantiy to the suppliers despatch note ad checks that the quality of the goods received are satisfactory. They complete a sequentially numbered goods received note and send a copy of the goods received note 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 authorised for payment by the finance director, but the actual payment is only made 60 days after the invoice is input into the system.

Required:
In respect of the purchasing system of XYZ Company:
a. Recommend a control to address each of these deficiencies

Answer 1

1. Before issuing a requisition for of purchase, XYZ should make proper calculations of the current stock level, reorder level.

2. Proper inventory records should maintain in the company like how many quantities in and out on which date from the warehouse. Proper inspection on time to time basis should be made on the maintenance of records also match the physical quantity of material with the quantity shown in the register.

3. A person should be authorized to fill and check all the requisition forms after proper inspection of the requirement of raw material.

4. The supplier list should be updated at short intervals in this competitive market, each supplier should be analyzed for the quality and price of the raw material. The company adopted a 24 months period for this which is not good.

5. to record purchase Invoices, a computerized system should be maintained and each invoices should be checked be a authorised person then send to record in purcchase ledger.