An Auditor Is Using Audit Sampling to Test Transactions in the Acquisition

question 37

Multiple Choice

An auditor is using audit sampling to test transactions in the acquisition and payment cycle. She would normally set the tolerable exception rate at what level?

• A) Low
• B) Medium
• C) High
• D) Indeterminate

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Definitions:

Variable Costing

A technique in accounting that encompasses only costs that vary with production (including direct materials, direct labor, and variable manufacturing overhead) in the pricing of products.

Period Cost

Expenses that are not directly tied to the production of goods and are instead associated with time periods, such as administrative salaries.

Variable Costing

A method of cost accounting where only variable production costs are included in product costs, with fixed overhead expenses treated as period costs.

Unit Product Cost

The total cost associated with producing a single unit of a product, calculated by dividing the total production costs by the number of units produced.