The company should also separate the duties of

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receive inventory and issue materials for production. The company should also separate the duties of preparing and signing checks, especially because the same person has the authority to approve payment. There is a failure to enforce authorization controls. Crosby should authorize purchases and approve payments. He might consider hiring another person so that the two tasks, record keeping and bank reconciliation can be separated. In addition to that, the company must have better hiring policies in place, they may require vacations, conduct internal audits and have good oversight of employees. Require vacations, conduct internal audits, owner/board oversight. 3. Even the best internal controls do not guarantee that fraud will be eliminated. These controls provide reasonable, not absolute, assurance against fraud. Internal controls are not fraud-proof, internal controls never provide absolute insurance that fraud will be prevented. Effectiveness depends on competency and dependability of people enforcing the controls.
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389 Answer: Question 1.16 – SieCo 1. SieCo is currently using a plant-wide overhead rate that is applied on the basis of direct labor costs. In general, a plant-wide manufacturing overhead rate is acceptable only if a similar relationship between overhead and direct labor exists in all department, or the company manufactures products which receive proportional services from each department. In most cases, departmental overhead rates are preferable to plant-wide overhead rates because plant-wide overhead rates do not provide a framework for reviewing overhead costs on a departmental basis, identifying departmental cost overruns, or taking corrective action to improve departmental cost control. sufficient information about product profitability, thus, increasing the difficulties associated with management decision-making. 2. In order to improve the allocation of overhead costs in the Cutting and Grinding Departments, SieCo should establish separate overhead accounts and rates for each of these departments. select an application basis for each of these departments that best reflects the relationship of the departmental activity to the overhead costs incurred, i.e., machine hours, direct labor hours, etc. identify, if possible, fixed and variable overhead costs and establish fixed and variable overhead rates for each department. 3. In order to accommodate the automation of the Drilling Department in its overhead accounting system, SieCo should establish separate overhead accounts and rates for the Drilling Department. identify, if possible, fixed and variable overhead costs and establish fixed and variable overhead rates. apply overhead costs to the Drilling Department on the basis of robot or machine hours. 4. Because SieCo uses a plant-wide overhead rate applied on the basis of direct labor costs, the elimination of direct labor in the Drilling Department through the introduction of robots may appear to reduce the overhead cost of the Drilling Department to zero. However, this change will not reduce fixed manufacturing expenses such as depreciation, plant supervision, etc.
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