Which Ratio Do Auditors Find Useful for Assessing Misstatements in Sales

question 134

Multiple Choice

Which ratio do auditors find useful for assessing misstatements in sales, cost of goods sold, accounts receivable, and inventory?

• A) earnings per share
• B) profit margin
• C) gross profit percent
• D) current ratio

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Definitions:

Actual Overhead Cost

The real expenses incurred during production that are not directly tied to specific products, including electricity, rent, and managerial salaries.

Direct Labour-Hours

The total hours worked by employees that are directly involved in the manufacturing process of a product.

Overapplied Overhead

A condition where the overhead applied to products or services exceeds the actual overhead costs incurred.

Overapplied Manufacturing Overhead

A situation where the amount of overhead allocated to products exceeds the actual overhead incurred.