In Obtaining an Understanding of a Manufacturing Entity's Internal Control

question 61

Multiple Choice

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

• A) Analyze the liquidity and turnover ratios of the inventory.
• B) Perform analytical procedures designed to identify cost variances.
• C) Review the entity's descriptions of controls over inventory.
• D) Perform test counts of inventory during the entity's physical count.

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Definitions:

Holding Cost

The expenses associated with storing inventory or goods before they are sold, including warehousing, insurance, and depreciation.

Setup Costs

The expenses incurred to prepare equipment or a process for manufacturing an order or batch of goods.

Enterprise Resource Planning Disadvantages

Limitations or potential challenges associated with implementing and using ERP systems, such as high cost and complexity.

Indented Bill of Material

A detailed list displaying the hierarchy of components and subcomponents needed to manufacture a product.