In Determining the Number of Documents to Select for a Test

question 51

Multiple Choice

In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized,an auditor should consider the tolerable rate of deviation from the control activity.The auditor should also consider: 1.Likely rate of deviations
2) Allowable risk of underreliance.

• A)1 only.
• B)2 only.
• C)Both 1 and 2.
• D)Either 1 or 2.

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Definitions:

Manufacturing Overhead

Costs in the production process that are not directly tied to a specific product, such as factory utilities or salaries of supervisors.

Product Costs

Expenses directly tied to the production of goods or services, including direct materials, direct labor, and manufacturing overhead.

Absorption Costing

A method of costing that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a unit of product.

Inventory Buildup

The accumulation of products or materials in excess of demand, often leading to increased storage costs and reduced cash flow.