In an Interview with the Plant Manager Regarding Operations, the Auditor

question 9

Multiple Choice

In an interview with the plant manager regarding operations, the auditor is most likely to obtain evidence that raises concerns regarding

• A) The capitalization vs. expensing policy.
• B) The allocation of fixed and variable costs.
• C) The need to write-off equipment that has become obsolete.
• D) The adequacy of depreciation expense.

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Definitions:

Step-fixed Costs

Costs that remain fixed over a range of activity, but jump to a higher level of expense at certain points when activity levels require it.

Variable Cost

Costs that vary directly with the level of production output or business activity, such as materials and labor directly involved in producing a product.

Inflationary Price Increase

A rise in prices across an economy, often due to an increase in the money supply or demand outstripping supply, reducing the purchasing power of money.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold.