The Following Tests of Controls Are Being Performed on the Audit

question 63

Essay

The following tests of controls are being performed on the audit of Hoppes Homes, Inc. For each test of control, fill in the table to indicate the corresponding control and the purpose of the control.
$\begin{array}{|l|l|l|}\hline \text { Test of Control: } & \text { Description of Control: } & \text { Pupose of Control: } \\\hline \begin{array}{l}\text { 1. Tour the client's storageand } \\\text { production facilities and observe the } \\\text { security features in use for inventory. }\end{array} & \begin{array}{l}\end{array} & \begin{array}{l}\end{array} \\\hline \begin{array}{l}\text { 2. Select a sample of inventory items } \\\text { and examine them for proper category } \\\text { of the records. }\\\end{array} & \begin{array}{l}\end{array}\\\hline \begin{array}{l} \text { 3. Select a sample of overhead } \\ \text { additions made to the cost accounting } \\ \text { records and recalculate for accuracy } \\ \text { and consistency with company policy. } \\\end{array}&\begin{array}{l}\end{array}&\begin{array}{l}\end{array}\\\hline \begin{array}{l} \text {4. Review the inventory records for } \\ \text {evidence that they have been adjusted. } \\ \text {based on the results of the physical } \\ \text { count. } \\\end{array}&\begin{array}{l}\end{array}&\begin{array}{l}\end{array}\\\hline \begin{array}{l} \text {5. Inspect documents identifying any } \\ \text { decline in inventory value and } \\ \text { recalculate for accuracy and } \\ \text { consistency with company policy. } \\\end{array}&\begin{array}{l}\end{array}&\begin{array}{l}\end{array}\\\hline\end{array}$

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Definitions:

Inputs Fixed

Refers to factors of production (like capital and land) that remain constant in quantity, regardless of the level of output.

Inputs Variable

Factors of production such as labor, land, and capital that are used to create goods and services.

Long-Run Adjustment

A process businesses undergo to alter their level of output in response to economic changes, ensuring long-term economic efficiency and resource allocation.

Assembly-Line

A manufacturing process in which parts are added to a product in a sequential manner to create a finished product more efficiently.