In an Interview with the Plant Manager Regarding Operations, the Auditor

question 41

Multiple Choice

In an interview with the plant manager regarding operations, the auditor is most likely to obtain evidence that raises concerns regarding:

• A)the capitalization vs. expensing policy.
• B)the allocation of fixed and variable costs.
• C)the need to write off equipment that has become obsolete.
• D)the adequacy of depreciation expense.

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Definitions:

Economic Profits

The surplus remaining after deducting both the explicit and implicit costs from total revenues; represents extra earnings above the next best alternative.

Fair Return

The reasonable profit that a business can expect to make, considering the risk involved.

Pure Monopoly

A market structure where a single firm is the sole producer of a product or service with no close substitutes, giving it significant control over price.

Profit-maximizing Price

The price level at which a company can sell its product or service to maximize its profit, considering cost, demand, and competition.