The Purpose of Tests of Controls Is to Provide Reasonable

question 53

Multiple Choice

The purpose of tests of controls is to provide reasonable assurance that the:

• A) entity has complied with disclosure requirements of generally accepted accounting principles.
• B) accounting treatment of transactions and balances is valid and proper.
• C) entity has complied with requirements of quality control.
• D) accounting control procedures are operating effectively.

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Definitions:

Fixed Cost

Costs that remain constant in total regardless of changes in the level of activity or production volume, such as rent or salaries.

Spending Variance

The difference between the actual amount spent and the budgeted amount for a particular category or period.

Manufacturing Overhead

Indirect costs related to manufacturing that cannot be directly tied to a specific product, such as maintenance and factory utilities.

Cost Formula

An equation used to calculate the total cost of production or service delivery, combining fixed costs, variable costs per unit, and expected activity levels.