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the audit of the financial statements of Sango Ltd., a closely held company which manufactures and distributes a line of mid-quality furniture.You have obtained the following client-prepared description of the company's procedures and controls over the acquisition and use of production materials:All production materials are kept in a locked storeroom. Storeroom personnel consist of a supervisor and three clerks. Materials are removed from the storeroom based on requisition forms submitted to the storeroom and signed by the production foremen.The storeroom clerks maintain perpetual inventory records of goods received and issued, in both quantities and dollar amounts (first-in, first-out basis). The record for each inventory item also includes a reorder level and a predetermined economic order quantity (EOQ). If the recorded quantity on hand falls below the reorder level, the supervisor telephones the accounts payable clerk, who prepares a pre-numbered purchase order in the amount of the EOQ. The original of the purchase order is sent to the normal supplier of that item (based on multi-year contracts), while a copy is retained in the clerk's files.When ordered materials arrive at Sango, they are received by the storeroom clerks. The clerks count the goods received and compare their counts to the shipper's bill of lading and supplier's packing slip. The goods received are then entered in the perpetual records. The bill of lading and packing slip are initialled, dated, and filed by supplier name in the storeroom.When a vendor's invoice is received in the mail, the accounts payable clerk telephones the storeroom and asks if the goods have been received. If yes, the invoice is matched with the purchase order copy, checked for proper description, pricing, clerical accuracy, and so on, and temporarily filed pending payment. If the goods have not yet been received, the accounts payable clerk asks the storeroom clerk to telephone as soon as the goods are delivered so that the invoice can be processed. In the interim, the invoice is kept in one of the drawers of his desk.RequiredList three weaknesses in the existing system of internal control. For each weakness, state the risk to the company if the control is not improved, and recommend improvements. Format your answer as follows: (9 marks)Weakness Risk Recommended improvement
Assume none of the fixed expenses for the Basic line are avoidable. What will be total net income if the line is dropped?
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