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 $(3$ percent$),$ production area $(57$ percent$),$ shipping and receiving $(15$ percent$),$ and finished goods and raw materials inventory warehousing $(25$ percent$).$ 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.

How would you go about looking for red flags?

Do you think red flags of possible fraud are present in $2024?$ 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 $2024$ and $2023$ respectively. Also, Cost of Goods Sold were $$6,242,500$ and $$6,080,000$ for $2024$ and $2023$ respectively.

Case $7$

$20242023$

Finished goods inventory $($Approx$.300$ million ft$.2024)$ $$1,654,500$ $$1,175,500$

Copper rod inventory $($Approx$.5\mathrm{.}9$ million lbs$.2024)$ $$2,625,000$ $$1,650,000$

Plastics inventory $($Approx$.1\mathrm{.}1$ million lbs$.2024)$ $$224,500$ $$182,000$

Accounts payable $($for inv. purchases$)$ $$450,000$ $$425,000$

Days purchases in AP $43\mathrm{.}6$ days $44\mathrm{.}2$ days

Days sales in receivables $56\mathrm{.}3$ days $48\mathrm{.}4$ days

Market price of insulated wire $($per ft$.)$ $$0\mathrm{.}008$ $$0\mathrm{.}009$

Market price of copper rod $($per lb$.)$ $$0\mathrm{.}480$ $$0\mathrm{.}480$

Market price of plastics $($per lb$.)$ $$0\mathrm{.}120$ $$0\mathrm{.}190$