Which of the Following Is the Most Likely Outcome When

question 16

Multiple Choice

Which of the following is the most likely outcome when the upper limit rate of deviation is less than the tolerable rate of deviation?

• A) The auditor would be exposed to the risk of assessing control risk too low.
• B) The auditor would decide to reduce the planned degree of reliance on internal control.
• C) The auditor would increase the extent of further audit procedures.
• D) The auditor would be exposed to a potential efficiency loss.

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Definitions:

Flexible Budget

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.

Manufacturing Overhead

The sum of all costs involved in the production process other than direct materials and labor, such as utilities and rent for the manufacturing facilities.

Fixed Overhead Volume Variance

The difference between the budgeted and actual volume of units produced, multiplied by the standard fixed overhead rate.

Labour Efficiency Variance

The difference between the actual labor hours taken to produce a good and the standard hours expected, multiplied by the standard labor rate.