Question

Paragraph Parti 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 the purchase ordering department uses the requisitions to raise sequentially numbered purchase orders based on the approved suppliers 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 quantity to the suppliers despatch note and checks that the quality of the goods received are Page 8 of 10 BLACC5905 ding and Assurance Servicesemester 2020 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 input 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 Identify and explain FIVE oficeras marks) Suggested Answer

Answer 1

Following are the deficiencies found in purchase system of XYZ Company.

1. Requisition forms are not authorized: the requisition form for purchase of any item shall be authorized by the head of the respective department making requisition for the items, so that only the genuine items can be purchased.

2. No reference to Current Inventory Levels: A Practice of making reference to current inventory levels shall be adopted by the Company so that the items already in inventory can be utilized and unnecessary cost can be reduced. It may be so that the item requisitioned by the department was already there in inventory and was again purchased.

3. List of Approved Suppliers very old: a list of Approved suppliers shall be updated frequently, so that the purchases can be made from the genuine supplier at the competitive rates.

4. No comparison of the quotations: it has been found the orders are directly authorized by the purchasing directors before being sent to the supplier, but there is no reference to the comparison of the different quotations from the different suppliers, which help to acquire the best product at the best price from the market.

5. Payments not made as per the agreed Terms and Conditions: it has been noticed that the payments are made after the 60 days of invoice input into the system but idealy the payments shall be made as per the mutual agreed terms and conditions between the xyz company and the suppliers.