The Auditor Determines That Mathews Company Occupies the 3rd Floor

question 91

Multiple Choice

The auditor determines that Mathews Company occupies the 3rd floor of an office tower for which it pays no rent. The most likely explanation is:

• A) they got lucky the landlord hasn't noticed the lack of payments.
• B) landlord has weak internal controls over billings.
• C) related party transaction in which a major shareholder owns the office tower.
• D) Matthews Company is engaging in fraudulent activities.

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Definitions:

Three-Way Overhead Variance

This is a method used in cost accounting to analyze the differences between actual overhead costs and budgeted overhead costs, broken down into spending, efficiency, and volume variances.

Overhead Spending Variance

The difference between the actual overhead incurred and the overhead costs that were expected or budgeted.

Variable Overhead Efficiency

The measurement of how effectively a company uses its variable overhead resources in the production process.

Product Costing

The process of determining the total cost associated with producing a product, including direct labor, materials, and overhead.