Tool Co. is a medium-sized company that buys copper rod and plastic materials to produce insulated copper
Question:
Tool Co. is a medium-sized company that buys copper rod and plastic materials to produce insulated copper wiring. Tool Co. operates out of a single building of about 500,000 square feet that includes office space (3%), production area (57%), shipping and receiving (15%), and finished goods and raw materials inventory warehousing (25%). You have gathered the following data about the company's inventories and performance, and now you are ready to conduct an analysis on these numbers to discover possible fraud symptoms.
1. How would you go about looking for red flags?
2. Do you think red flags of possible fraud are present in 2017? By comparing these numbers to Sales you can do a vertical analysis. To do so, assume that Sales were $8,450,000 and 8,150,000 for 2017 and 2016 respectively. Also, Cost of Goods Sold were $6,242,500 and $6,080,000 for 2017 and 2016 respectively.
2017 2016 Finished goods inventory (Approx. 300 million ft.-2017) $1,654,500 $1,175,500 Copper rod inventory (Approx. 5.9 million Ibs.–2017) $2,625,000 $1,650,000 Plastics inventory $224,500 $182,000 (Approx. 1.1 million Ibs.-2017) Accounts payable (for inv. purchases) $450,000 $425,000 Days purchases in AP 43.6 days 44.2 days Days sales in receivables 56.3 days 48.4 days Market price of insulated wire $0.008 $0.009 (per ft.) Market price of copper rod (per Ib.) $0.480 $0.480 Market price of plastics (per lb.) $0.120 $0.190
Step by Step Answer:
1 One way to search for possible red flags of fraud would be to determine if the market value of inv...View the full answer
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