An internal auditor is examining inventory control in a merchandising division with annual sales of US...

 

Transcribed Image Text:

An internal auditor is examining inventory control in a merchandising division with annual sales of US $3,000,000 and a 40% gross profit rate. Tests show that 2% of the monetary amount of purchases do not reach inventory because of breakage and employee theft. Adding certain controls costing US $35,000 annually could reduce these losses to .5% of purchases. Should the management consider the controls recommended by the internal auditor ? No, because the cost of the added controls exceeds the projected savings. Yes, regardless of cost-benefit considerations, because the situation involves employee theft. Yes, because the projected saving exceeds the cost of the added controls. Yes, because the ideal system of internal control is the most extensive one. An internal auditor is examining inventory control in a merchandising division with annual sales of US $3,000,000 and a 40% gross profit rate. Tests show that 2% of the monetary amount of purchases do not reach inventory because of breakage and employee theft. Adding certain controls costing US $35,000 annually could reduce these losses to .5% of purchases. Should the management consider the controls recommended by the internal auditor ? No, because the cost of the added controls exceeds the projected savings. Yes, regardless of cost-benefit considerations, because the situation involves employee theft. Yes, because the projected saving exceeds the cost of the added controls. Yes, because the ideal system of internal control is the most extensive one.

Answer rating: 100% (QA)

Yes because the ideal system of internal controls is the most extesive one As we all know every comp... View the full answer