Jones,CPA,used a Classical Variables Sampling Application to Examine the Inventory

question 66

Multiple Choice

Jones,CPA,used a classical variables sampling application to examine the inventory balance of XYZ Company.The recorded value of the inventory was $240,000,and Jones determined a tolerable misstatement of $12,000.Jones' sampling procedures resulted in a precision interval of $224,000 to $236,000.As a result,Jones should conclude that the

• A) inventory balance is fairly stated.
• B) inventory balance is materially misstated.
• C) tolerable misstatement should be increased.
• D) risk of incorrect acceptance is below the desired level.

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Definitions:

Contribution Margin

Contribution margin represents the amount by which sales revenue exceeds variable costs, indicating how much revenue is contributing to covering fixed costs and generating profit.

Net Income

The net income of a business following the deduction of all taxes and expenses from its overall revenue.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, indicating how a change in sales will affect profits.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenue.