When Setting a Preliminary Judgment About Materiality

question 27

Multiple Choice

When setting a preliminary judgment about materiality:

• A)more evidence is required for a low dollar amount than for a high dollar amount.
• B)less evidence is required for a low dollar amount than for a high dollar amount.
• C)the same amount of evidence is required for either low or high dollar amounts.
• D)there is no relationship between it and the dollar amount of evidence needed.

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Definitions:

Break-even Point

The financial state in which total costs and total revenues are equal, meaning no net loss or gain is incurred by the business.

Variable Costs

Costs that change directly and proportionally with the level of production or business activity, such as materials and labor.

Contribution Margin

The amount by which sales revenue exceeds variable costs, indicating the contribution towards covering fixed costs and generating profit.

Fixed Costs

Expenses that do not fluctuate with the level of production or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity.