When an Auditor Calculates the Gross Margin as a Percent

question 1

Multiple Choice

When an auditor calculates the gross margin as a percent of sales and compares it with previous periods, this type of evidence is called:

• A) analytical procedures.
• B) observation.
• C) physical examination.
• D) inquiry.

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Definitions:

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity expected to be used, multiplied by the standard cost per unit.

Direct Materials Purchases Variance

The difference between the actual costs of materials purchased and the expected (standard) costs.

Variable Overhead

Costs that fluctuate with changes in production volume, such as utilities or indirect materials, which are part of the overall overhead but vary with the level of output.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the standard variable overhead allocated to produced goods, based on the standard variable overhead rate.