When Auditing Merchandise Inventory at Year-End,the Auditor Performs a Purchase

question 16

Multiple Choice

When auditing merchandise inventory at year-end,the auditor performs a purchase cutoff test to obtain evidence that

• A)All goods purchased before year-end are received before the physical inventory count.
• B)No goods held on consignment for customers are included in the inventory balance.
• C)No goods observed during the physical count are pledged or sold.
• D)All goods owned at year-end are included in the inventory balance.

---

Definitions:

Average Total Costs

The total cost of production (fixed plus variable costs) divided by the total quantity of output, indicating the cost per unit of output.

Variable Costs

Costs that change in proportion to the level of output or activity.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Economic Profits

Profits exceeding the total opportunity costs of a business, indicating it is outperforming its next best alternative.