Question 1

Production reports of finished units should be signed by the _______ and finished goods inventory custodian and forwarded to _______ .

Accepted Answer

The answer of Production reports of finished units should be...

Question 2

Auditors record the last bill of lading used at the time of the inventory count to

Accepted Answer

A) search for unrecorded sales. 
B) test cutoff. 
C) verify ownership. 
D) All of the choices.

Question 3

An auditor who wished to test for the existence or occurrence of inventory would most likely select a sample of inventory items from the perpetual records and

Accepted Answer

A) trace additions to the general ledger. 
B) vouch additions to receiving reports. 
C) vouch additions to sales invoices. 
D) trace receipts to receiving reports.

Question 4

A sample from the source documents meets the _______ requirement to determine whether transactions were actually recorded in the inventory records.

Accepted Answer

The answer of A sample from the source documents meets...

Question 5

An auditor selected a product recorded in the finished goods perpetual inventory subsidiary account. The auditor went to the warehouse and counted the product and compared this amount with the amount in the finished goods perpetual inventory subsidiary account. Which ASB balance assertion is the auditor most likely testing?

Accepted Answer

A) Existence 
B) Completeness 
C) Rights and obligations 
D) Valuation

Question 6

Selecting a sample of cost accounting reports for labor and vouching it to time records is a procedure designed to test the ASB transaction assertion of

Accepted Answer

A) occurrence. 
B) valuation. 
C) completeness. 
D) presentation and disclosure.

Question 7

Tracing production cost accumulation forward into the production cost reports in the cost accounting department is a test for _______ .

Accepted Answer

The answer of Tracing production cost accumulation forward into the...

Question 8

_______ can be used in connection with knowledge of the shape of management's plans for the year under audit.

Accepted Answer

The answer of _______ can be used in connection with...

Question 9

To determine the client's planned amount and timing of production of a product, the auditor will review the

Accepted Answer

A) sales forecast. 
B) inventory reports. 
C) production plan. 
D) purchases journal.

Question 10

Materials requisitions should be compared in the _______ department with the ________ on the production order.

Accepted Answer

The answer of Materials requisitions should be compared in the...

Question 11

Generally accepted accounting principles (GAAP) require that inventory be recorded at

Accepted Answer

A) the lower of cost or fair market value. 
B) the lower of cost or net realizable value. 
C) the higher of cost or net realizable value less a normal profit (floor). 
D) None of the choices are correct.

Question 12

The cost accounting department at Blue Manufacturing Company receives various types of information at the end of each week. The production floor reports time and production work data directly to the cost accounting department. Also, the payroll department sends labor cost data to the cost accounting department. What is the cost accounting department likely to do with this information? Why?

Accepted Answer

The answer of The cost accounting department at Blue Manufacturing...

Question 13

Which of the following would be considered an analytical procedure?

Accepted Answer

A) Testing purchasing, shipping, and receiving cutoff activities. 
B) Comparing inventory balances to recent sales activities. 
C) Projecting the deviation rate of a statistical sample to the population. 
D) Reconciling physical counts to perpetual records and general ledger balances.

Question 14

Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?

Accepted Answer

A) Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the accuracy of the perpetual inventory record. 
B) Have an independent accounting firm prepare an internal control report on the effectiveness of the controls over inventory. 
C) Have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records. 
D) Require a manager's signature for the removal of any inventory item with a value above $50.

Question 15

Which of the following auditing procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

Accepted Answer

A) Trace test counts noted during the entity's physical count to the entity's summarization of quantities. 
B) Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens. 
C) Select the last few shipping documents used before the physical count and determine whether the shipments were recorded as sales. 
D) Inspect the open purchase order file for significant commitments that should be considered for disclosure.

Question 16

Your client counts inventory three months before the end of the fiscal year. Internal controls over inventory are excellent. Which procedure is not necessary for the inventory roll-forward?

Accepted Answer

A) Check that shipping documents for the last three months agree with perpetual records. 
B) Tracing receiving reports for the last three months to perpetual records. 
C) Compare gross margin percentages for the last three months. 
D) Request the client to recount inventory at the end of the year.

Question 17

To test the control assertion of completeness in the area of work-in-process inventory, the auditor most likely would

Accepted Answer

A) select a sample of open and closed production cost reports and recalculate all costs entered. 
B) select a sample of issue slips from the raw materials stores file and trace materials-used reports to production cost reports. 
C) select a sample of open and closed production cost reports and vouch overhead charges to overhead analysis schedules. 
D) select a sample of production orders and determine whether the production orders were authorized.

Question 18

The auditor tests the quantity of materials charged to work-in-process by vouching these quantities to

Accepted Answer

A) cost ledgers. 
B) perpetual inventory records. 
C) receiving reports. 
D) material requisitions.

Question 19

A client maintains perpetual inventory records in quantities and in dollars. If the assessed control risk is high, an auditor would probably

Accepted Answer

A) apply gross profit tests to ascertain the reasonableness of the physical counts. 
B) increase the extent of tests of controls relevant to the inventory cycle. 
C) request the client to schedule the physical inventory count at the end of the year. 
D) insist that the client perform physical counts of inventory items several times during the year.

Question 20

Periodic or cycle counts of selected inventory items are made at various times during the year rather than during a single inventory count at year-end. Which of the following is necessary if the auditor plans to observe inventories at interim dates?

Accepted Answer

A) Complete recounts by independent teams are performed. 
B) Perpetual inventory records are maintained. 
C) Unit cost records are integrated with production accounting records. 
D) Inventory balances are rarely at low levels.

Exam 9: Production Cycle 394

Production reports of finished units should be signed by the _ and finished goods inventory custodian and forwarded to _ .