A CPA would recommend implementing an activity-based costing system under which of the following circumstances?
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1 .The auditor should obtain sufficient knowledge of the client's information and communication system relevant to financial reporting to understand all of the following, except:
A Classes of transactions in the entity's operations that are significant to the financial statements, and how those transactions are processed, from initiation to inclusion in the financial statements. B The financial reporting process, including development of significant accounting estimates and ...
2 .The benefit that management can expect from traditional costing includes which of the following:
A Leads to a more competitive position by evaluating cost drivers, i.e., costs associated with the complexity of the transaction rather than the production volume. B Uses a common departmental or factory wide measure of activity, such as direct labor hours or dollars to distribute manufacturing over...
3 .An auditor's primary consideration in evaluating controls is whether specific controls:
A Can be classified into one of the five internal control components. B Reduce detection risk to a sufficiently low level. C Improve the efficiency of the client's operations. D Affect financial statement assertions.
4 .The use of activity-based costing normally results in:
A Decreased set-up costs being charged to low-volume products. B Substantially lower unit costs for low-volume products than is reported by traditional product costing. C Substantially greater unit costs for low-volume products than is reported by traditional product costing. D Equalizing set-up cos...
5 .In order to obtain an initial understanding of internal control sufficient to assess the risk of material misstatement of the financial statements, an auditor would most likely perform which of the following procedures?
A Expanded substantive testing to identify relevant controls. B Risk-assessment procedures to evaluate the design of relevant controls. C Analytical procedures to determine the need for specific controls. D Tests of key controls to determine whether they are effective.
7 .In which of the following circumstances would an auditor expect to find that an entity implemented automated controls to reduce risks of misstatement?
A When transactions are high-volume and recurring. B When errors are difficult to predict. C When large, unusual, or nonrecurring transactions require judgment. D When misstatements are difficult to define.
8 .Arbor Corporation uses a water cooling system in its manufacturing operations. Gallons of water purchased for engine cooling increases with manufacturing production. Water and sewer utility costs recorded by the Arbor Corporation are billed to the company based on a minimum charge plus a rate for utilization beyond the minimum charge for 5,000 gallons of usage. Arbor would most likely classify its utility costs as:
A Semivariable costs. B Fixed costs. C Non diversifiable. D Variable costs.
9 .When a service organization provides services that affect the initiation, execution, processing, or reporting of a user company's transactions, those services are:
A Not considered to be part of the user company's internal control. B Considered to be part of the user company's control environment. C Considered to be part of the user company's information system. D Considered to be part of the user company's control activities.
10 .If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?
A Direct materials. B Conversion costs. C Prime costs. D Direct labor.
