When Auditing Manufacturing Overhead Costs Assigned to Inventory, Auditors Should

question 15

Multiple Choice

When auditing manufacturing overhead costs assigned to inventory, auditors should keep in mind that

• A) GAAP has strict procedures that must be followed when assigning overhead to work-in-process inventory.
• B) overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory.
• C) management typically allocates overhead using total direct labor dollars as the basis for the allocation.
• D) determining the reasonableness of the allocation method is relatively simple for work-in-process inventory.

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Definitions:

Circular-flow Diagram

A Circular-Flow Diagram represents an economic model visually demonstrating the movement of money through markets between households and companies.

Financial Assets

Assets that are paper claims on some return or income, such as stocks, bonds, or bank deposits.

Factors Of Production

Elements involved in generating goods and services, such as land, workforce, financial investment, and entrepreneurial skill.

Production Possibilities Frontier

A graph that shows the highest production levels of two products, based on available resources and various factors.