Smith Ltd Has Numerous Customers

question 2

Multiple Choice

Smith Ltd has numerous customers. Each customer file contains name, address, credit limit and account balance. The auditor wishes to undertake a test of the programmed control that does not allow account balance to exceed credit limit. The best procedure for the auditor to follow would be to:

• A) develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.
• B) develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations.
• C) request a printout of a sample of account balances so they can be individually checked against the credit limits.
• D) request a printout of all account balances so they can be manually checked against the credit limits.

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Definitions:

Variable Cost

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Annual Demand

The total quantity of a product or service that is expected to be sold or used in one year.

Fixed Cost

Costs that remain consistent regardless of the amount of goods produced or sold, including expenses like rent, wages, and insurance premiums.

Unit Variable Cost

The cost associated with producing one additional unit of product, not including fixed costs.