Bebe Co is a small company that manufactures and sells high-quality.blouses. Its customers are mainly fashion boutiques.
Bebe Co has two directors, one of who is non-executive. The other is involved in the day-to-day administration of the company. There are ten other employees. Six of these work in the factory, one works in the warehouse, one is a sales representative and two are accounts staff. The accounts staff consist of Miss Ines, who is responsible for processing sales and receivables, and Mrs. Evie, who is the purchases and wages clerk. Mrs. Evie works part-time, five mornings a week. The company's sales representative visits shops throughout the region. He takes orders from customers which he records on a pre-numbered two-part order form. He passes the completed forms to the accounts department. Miss Ines files one copy of the order form in numerical sequence and passes the other to the warehouse.



The completed order is dispatched from the warehouse by the carrier, accompanied by one copy of a dispatch note. The other copy is sent to Miss Ines, who prepares an invoice based on the information it contains and on the company's price list. She sends one copy of the invoice to the customer, and a second copy of the invoice is retained



Each Friday, Miss Ines inputs the week's invoices to the computerized sales ledger. She then files the invoices alphabetically by customer name. Dispatch notes are not retained because filing space is limited. Miss Ines opens the post daily and lists remittances received from credit customers. Every Friday, she inputs the information listed to the sales ledger. Cheques received are banked daily by the executive director.



Miss Ines reviews the sales ledger balances every month and writes to customers who have not paid within 90 days of receiving goods. The sales ledger is printed out annually for year-end purposes. Otherwise, no hard copy is printed, and Miss Ines reviews the sales ledger on the computer screen. The company's computer package includes the facility to produce a sales day book and sales ledger control account. These are not used because Miss Ines considers that the low volume of transactions (10-15 invoices per week) makes them unnecessary.
Requirements
a) Explain the particular issues relating to controls which would affect the audit of a small company such as Knits.
b) List six control objectives of a sales system.
c) State, with reasons, what you consider to be the potential deficiencies in Ecovacs’s present system of accounting for sales and receivables.
d) List and explain the controls that a small firm such as Ecovacs could feasibly adopt to overcome the deficiencies you have identified.

It should be noted that some of the issues that relate to controls that could affect the audit of a small company include the separation of duties, documentation, etc.

Some of the problems that van lap be faced during the audit include the failure to exercise professional care and the deficiency in confirming account receivables.

The control objectives of a sales system include:

It should be noted that the deficiencies in the system of accounting include the determination of the face value of the receivables and the length of time the receivable will be outstanding.

Lastly, to avoid the problem above, consideration should be given to the integrity of the firm, and the financial soundness of the company.

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Discounting a stream of benefits is defined as
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d. a multi-period valuation model that converts a future series of benefit streams into value by discounting them to present value.

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During 2011, Gum Co. introduced a new product carrying a two- year warranty against defects.

The estimated warranty costs related to dollar sales are 2% within 12 months following the sale and 4% in the second 12 months of the sale.

The sale and actual warranty expenditures for the years ended December 31, 2011, and 2012 are as follows:

Sales Actual warranty expenditures
2011 150,000 2,250
2012 250,000 7,500
Total 400,000 9,750
What amount should Gum report as warranty expense on its 12/31/2012 Income Statement?

Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine. Information about the two alternatives follows. Management requires a 10% rate of return on its investments.
Alternative 1: Keep the old machine and have it overhauled. This requires an initial investment of $150,000 and results in $50,000 of net cash flows in each of the next five years. After five years, it can be sold for a $15,000 salvage value.
Cost of old machine $111,000
Cost of overhaul 158,000
Annual expected revenues generated 106,000
Annual cash operating costs after overhaul 43,000
Salvage value of old machine in 5 years 16,000
Alternative 2: Sell the old machine for $29,000 and buy a new one. The new machine requires an initial investment of $300,000 and can be sold for a $20,000 salvage value in five years. It would yield cost savings and higher sales, resulting in net cash flows of $65,000 in each of the next five years.
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Salvage value of old machine now 34,000
Annual expected revenues generated 94,000
Annual cash operating costs 22,000
Salvage value of new machine in 5 years 15,000
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3
4
5
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7
8
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In choosing a career, your personal resources are defined as
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