When an Auditor Tests an Entity's Cost Accounting System, the Auditor's

question 66

Multiple Choice

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that:

• A)quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand.
• B)physical inventories are in substantial agreement with book inventories.
• C)the system is in accordance with generally accepted accounting principles and is functioning as planned.
• D)costs have been properly assigned to work in process, finished goods, and cost of goods sold.

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Definitions:

Marginal Cost

The increase in total cost that arises from producing one additional unit of a product or service, an important concept in economics for decision making.

Variable Input

An input in the production process that can be adjusted in the short term to change the level of output.

Industry Supply Curve

A graphical representation that shows the relationship between the price of a good and the total output of that good by all firms in the industry.

Marginal Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good varies as production volume changes.