ICAS Project - Section 10

Tonicha

Hi Folks


I am stuck on section 10 - Costs/Benefits Analysis. I have chosen the Purchase Ledger department.....I only need some hints to start!!!????

Would somebody be kind enough to give me any hints of how to go about completing this section?



Thanks in advance.

sdv

Every weakness that you identify, you will make a recommendation to improve that weakness. Thus you can do a cost benefit on every recommendation to improve the working practice.

To do a cost benefit you need to cost the current working practice (with the weakness) and the cost your recommendation. There will be a cost in implementing your recommendations and benefits from practicing your recommendations.

for example
Weakness identified: As soon as the suppliers start to chase for the settlement of their outstanding invoices, a payment cheques is prepared and posted to supplier by end of the day. Creditor’s ratio for the company shows a ratio of 23 days. Terms of credit on the purchases are at least 30 days. This has resulted in settlement of creditor's invoices 7 days earlier.

Recommendations: Before suppliers invoices are settled, a creditors aged list should be printed and only those invoices should be paid that are over 30 days old.

cost of implementing recommendation = £nil - only change in practice by management accountant to authorise the payment after checking the age of supplier's invoice.

savings: 7 day's bank over draft interest at 8% (Barclays bank rate) on the average monthly purchase of £1,000,000
= 1,000,000 time 8%= £80,000 per year
£80,000 divide by 365 days times 7 days = £1,534 savings in Bank overdraft interest.