When Performing Planning Analytical Procedures for a Client the Auditor

question 18

Multiple Choice

When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit. The auditor should

• A) investigate the possibility the client may have made an error in their cost of goods sold computation.
• B) assist management in developing greater cost efficiencies in their product line.
• C) prepare a going concern opinion for the client.
• D) advise the client to have extensive disclosure to alleviate investor concerns.

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Definitions:

Finishing Department

The sector in a manufacturing process where products undergo final treatments, such as polishing, painting, or packaging, before being sold or shipped.

Predetermined Overhead Rate

A calculated rate used to assign manufacturing overhead costs to individual products, based on estimated or known factors.

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process or delivery of services.

Machine-Hours

The total number of hours that machinery is in operation during a specific period.