Question

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References Mailings Review View Help Tell me what you want to do Aa- e.-| | | :-. |g.B- | | 1Normal 1No Spac Heading 1 Heading 2 Paragraph Styles 1. Explain the components of the fraud triangle? Which component is most closely tied to internal controls? Describe in detail two common internal control practices. 2. Below is the income statement for Smith Company, a merchandising firm. Take this information and prepare a contribution margin income statement. Hint: All information will be used. Additionally, a header for your contribution margin income statement must be included. What does the break-even point mean? Read the following and solve. Be sure to show your work in detail. Jones Corporation, which makes and sells 85,000 radios annually, currently purchases the radio speakers it uses for $8.00 each. Each radio uses one speaker. The company has idle capacity and is considering the possibility of making the speakers that it needs. Jones estimates that the cost of materials and labor needed to make speakers would be a total of $6.50 for each speaker. In addition, supervisory salaries, rent, and other manufacturing costs would be $170,000. Allocated facility- level costs would be $75,000. What are the relevant costs to make the speakers? 3. 4. Show details of the calculation and provide a total. Do you feel that Jones Corporation should make the speakers or outsource the speakers and why?

Answer 1

1.Fraud Triangle: As the name itself specifies that it is triangle, It has three components. They are the pressure, rationalisation and opportunity.

Pressure is nothing but the financial need of the person, which motivates him to commit fraud, where as rationalisation refers to the attitude of the person that he will repay the amount at a later point of time and opportunity refers to a situation where he finds out loopholes or weaknesses in Internal control sysytem of an entity, which ultimately lead him to commit fraud.

In all the three, the factor that is closely related to the Internal controls of an entity is Opportunity. Some of the Internal Controls in the orhganisation can be as follows:

1. Segregation of duties. For example, Cashier should have access to alter the cash book. Purchase department should not have access to physical store.

2. There should be authorisation at evey level of organisational Hierarchy. The work of person should be checked by other.

3. Periodical reconciliations should be performed to maintain the Internal Financial Controls in an entity.

4. There should be strict policies in organisation for maintainence of controls.

3. Break Even Point: It refers to that level where the production level of an entity equals to the costs of the entity. It means, in a simple way, profit of the entity is equal to cost of the entity, which results in the entity ending up with no profit or no loss.