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:
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1 .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.
2 .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...
3 .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.
4 .A CPA would recommend implementing an activity-based costing system under which of the following circumstances?
A Most of the client's costs currently are classified as direct costs. B The client is a single-product manufacturer. C The client produced many different products that homogeneously consume resources. D The client produced products that heterogeneously consume resources.
5 .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.
7 .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.
8 .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.
9 .Payroll Data Co. (PDC) processes payroll transactions for a retailer. Cook, CPA, is engaged to express an opinion on a description of PDC's internal controls placed in operation as of a specific date. These controls are relevant to the retailer's internal control, so Cook's report may be useful in providing the retailer's independent auditor with information necessary to plan a financial statement audit. Cook's report should:
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10 .State College is using cost-volume-profit analysis to determine tuition rates for the upcoming school year. Projected costs for the year are as follows: Contribution margin per student $1,800 Variable expenses per student 1,000 Total fixed expenses 360,000 Based on these estimates, what is the approximate breakeven point in number of students?
A 200 B 360 C 129 D 450
