An Auditor Noted That Client Sales Had Increased 10 Percent

question 7

Multiple Choice

An auditor noted that client sales had increased 10 percent for the year. At the same time, cost of goods sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. The auditor interviewed the sales manager who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor best test the sales manager's representation?

• A)Perform additional inquiries with sales personnel.
• B)Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.
• C)Send confirmations asking customers about unit prices paid for product.
• D)Vouch vender invoices to payments made after year-end.

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Definitions:

Activity-based Costing

A costing methodology that assigns overhead and indirect costs to specific activities related to the production of goods or services.

Order Size

The quantity of goods a customer purchases in a single order, which can impact production planning and inventory management.

Activity-based Costing

An accounting method that assigns costs to products or services based on the activities that go into producing them, providing more accurate cost information.

Customer Support

Assistance provided by a company to its customers with the products or services it sells.