When Auditing Manufacturing Overhead Costs Assigned to Inventory, Auditors Should

question 15

Multiple Choice

When auditing manufacturing overhead costs assigned to inventory, auditors should keep in mind that

• A) GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory.
• B) overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory.
• C) management typically allocates overhead using total direct labor dollars as the basis for the allocation.
• D) determining the reasonableness of the allocation method is relatively simple for work-in-process inventory.

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Definitions:

Net Cash Inflows

The amount of cash received by a company from its various operational, investment, and financing activities, minus cash outflows, during a specific period.

Net Present Value

The total present value of a series of future cash flows minus the initial cost of investment.

Depreciation Costs

Expenses that represent the reduction in value of tangible assets over time due to use, wear, and tear, or obsolescence.

Net Present Value

A financial metric that calculates the value of a series of cash flows by discounting them to their present value, often used in investment appraisal.