Probability Proportionate to Size (PPS) Evaluation May Understate the Allowance

question 130

True/False

Probability Proportionate to Size (PPS) evaluation may understate the Allowance for Sampling Risk (ASR) when misstatements are found in the sample.

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Definitions:

Margin

Net operating income divided by sales.

Contribution Margin Ratio

The percentage of each sale that contributes to covering fixed costs, calculated as contribution margin divided by sales revenue.

Fixed Expenses

Expenditures that stay unchanged despite differences in the volume of production or sales, covering items like rental fees, payroll, and coverage costs.

Sales

The exchange of goods or services for money, quantifying the performance and profitability of a business.