Internal Control Can Only Provide Reasonable Assurance as There Are

question 16

Essay

Internal control can only provide reasonable assurance as there are inherent limitations within an entity's control structure. Identify and describe three of these limitations.

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Definitions:

Overhead Costs

The indirect costs or expenses of running a business that are not directly tied to the production of goods or services, such as rent, utilities, and office supplies.

Plantwide Overhead Rate

A single overhead absorption rate calculated to allocate all manufacturing overhead costs uniformly across all products.

Machine Hours

A measurement of production time, indicating the total hours that machinery has been operated.

Allocation Base

A factor or criterion used for distributing overhead costs to products or services, based on activities such as direct labor hours or machine hours.