Auditors Sometimes Use Comparisons of Ratios as Audit Evidence

question 3

Multiple Choice

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

• A)Unrecorded purchases.
• B)Unrecorded sales.
• C)Merchandise purchases being charged to selling and general expense.
• D)Fictitious sales.

Grasp the role of contribution margin and contribution margin ratio in making product-related decisions.

Identify the factors influencing make or buy decisions.

Recognize the significance of opportunity costs and sunk costs in business decisions.

Understand the importance of effectively managing bottleneck operations to maximize production efficiency.

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Definitions:

Power to Tax

The authority granted to government entities to impose levies on individuals and corporations to fund public services and initiatives.

Individual Mandate

A requirement that individuals must have health insurance coverage or face penalties, as outlined in the Affordable Care Act.

Federal Subsidies

Federal subsidies are financial support and assistance provided by the federal government to organizations, businesses, and individuals in various sectors, including agriculture, health care, and energy, to support public policy objectives.

Interstate Commerce Clause

A provision in the U.S. Constitution granting Congress the power to regulate commerce among the states.