During a Review of a Division's Operations, an Internal Auditor

question 169

Multiple Choice

During a review of a division's operations, an internal auditor notes that sales and customer base are unchanged, while inventory and gross margin have increased significantly. Which of the following audit procedures would be most relevant in substantiating management's assertion that the gross margin increase is due to increased efficiency in manufacturing operations?

• A) Obtain a physical count of inventory.
• B) For a sample of products, compare costs-per-unit this year to those of last year, test cost build-ups, and analyze standard cost variances.
• C) Take a physical inventory of equipment to determine if there were significant changes.
• D) Select a sample of finished goods inventory and trace raw materials cost back to purchase prices in order to determine the accuracy of the recorded raw materials price.

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Definitions:

Shoeleather Costs

The resources wasted when inflation encourages people to reduce their money holdings.

Money Holdings

The amount of cash or liquid assets that a person or entity possesses at any given time.

Money Supply

The whole amount of money resources available in an economy at a given interval.

Equilibrium Value

The price or point at which supply and demand for a good or service are equal, leading to market stability.