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:

Lawn Mowing

The action or process of cutting the grass in a lawn to maintain its appearance and health.

Shut Down

A short-term decision by a firm to cease production due to market conditions, typically because the market price is below the minimum of average variable costs.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, indicating profitability beyond normal returns.

Long-run

A period of time in which all factors of production and costs are variable, allowing companies to adjust to market changes completely.