The Overall Objective in the Audit of the Inventory and Distribution

question 69

Multiple Choice

The overall objective in the audit of the inventory and distribution cycle is to determine that

• A)costs of goods sold and gross profit are correctly stated on the income statement.
• B)inventory items on the balance sheet are neither fraudulent nor materially in error.
• C)gross profit and inventory are fairly presented on the financial statements.
• D)inventory and cost of goods sold are fairly stated on the financial statements.

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Definitions:

Controllable Cost

An expense that can be directly controlled or influenced by a manager or decision maker within a specific timeframe.

Manufacturing Department

A specific division within a company where goods are produced, focusing on the transformation of raw materials into finished products.

Absorption Costing

An accounting method that includes all manufacturing costs — direct materials, direct labor, and both variable and fixed manufacturing overhead — in the cost of a product.

Operating Income

A measure of a company's profit that excludes non-operating expenses and revenues, focusing solely on the income generated from its core business operations.