A Client Maintains Perpetual Inventory Records in Both Quantities and Dollars.If

question 29

Multiple Choice

A client maintains perpetual inventory records in both quantities and dollars.If the assessed level of control risk is high, an auditor would probably:

• A)insist that the client perform physical counts of inventory items several times during the year.
• B)apply gross profit tests to ascertain the reasonableness of the physical accounts.
• C)increase the extent of tests of controls of the inventory cycle.
• D)request the client to schedule the physical inventory count at the end of the year.

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Definitions:

Product Costs

The costs directly connected to the creation of a product, including materials, labor, and manufacturing overhead.

Period Costs

Expenses that are not directly tied to the production process and are expensed in the period in which they are incurred, such as selling and administrative costs.

Direct Manufacturing Cost

Expenses directly related to the production of goods, including labor and materials.

Incremental Manufacturing Cost

The extra expense associated with manufacturing an additional unit of a product.