Reference no: EM132737002

Question - Fragrant Scents Co (Fragrant) manufactures and sells luxury toiletries. They have been trading for over 20 years and the company's yearend is 30 September 2019. Fragrant sells products to retailers (trade customers) via its own website. This represents 60% of revenue. Remaining revenue is generated by contracts to supply toiletries to hotels.

Below is a description of the sales system.

Hotel revenue - The hotel revenue is made up of four key customers. Fragrant has one sales clerk, Bernice, who maintains all aspects of this revenue stream. Bernice receives customer orders, raises sales invoices and processes payments. In raising invoices, the sales system automatically inserts the online trade customer prices for products. However, each hotel customer has contracted prices which are lower than the online prices and hence Bernice will manually amend the invoices prior to despatch.

Online revenue - New trade customers are set up in the sales ledger master file upon passing suitable credit checks, and a credit limit is set at this stage by the finance director. Customers place online orders up to their pre-set credit limit. However, the credit limit will not be changed once it is pre-set.

Goods are despatched daily with a goods despatched note (GDN) which is referenced to the sales order number but are not sequentially numbered. Fragrant used to despatch goods via a reliable national courier company. However, to reduce costs they have changed to a cheaper local courier and some orders have been delivered to customers late.

Customers' sales invoices are automatically generated by the system on the day the online order is placed. The prices are inserted in accordance with the website rates. Occasionally Fragrant makes special offers or discounts sales. When this occurs the master file data has to be manually amended to ensure that the correct prices are used on invoices. This task is usually performed by a senior sales ledger clerk.

Required -

(i) Identify and explain FIVE (5) weaknesses in Fragrant sales and receivables system.

(ii) Recommend improvements to address the weaknesses.