Question

A production manager of MSM Company ordered excessive raw materials and had them delivered to a side business he operated. The manager falsified receiving reports and approved the invoices for payment. Which of the following procedures would most likely detect this fraud?
a. vouch for cash disbursements to receiving reports and invoices.
b. confirm the amounts of raw materials purchased, purchase prices, and dates of shipment with vendors.
c. perform ratio and trend analysis comparing the cost of raw materials purchased with the cost of goods produced.
d. observe the receiving dock and count materials received. Compare the counts with receiving reports completed by receiving personnel.

Answer 1

Answer:

c. perform ratio and trend analysis compare the cost of raw materials purchased with the cost of goods produced.

Explanation:

The fraud can be detected by performing ratio and trend analysis in order to know if the company financial state is becoming higher or lower by then comparing it with the cost of raw materials which was purchase with the cost of goods sold.

This will enable us to know the actual amount of the purchase made in the company and the cost of the goods they have sold at that particular time. If their is any discrepancy it simply means fraudulent act has been committed.