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Auditing: 50 multiple choice audit questions

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1 Which one of the following is not a General Standard?
a. Proper planning and supervision.
b. Independence of mental attitude.
c. Adequate training and proficiency.
d. Due professional care.

2 Which one of the following is not a Field Work Standard?
a. Proper planning and supervision.
b. Due professional care.
c. Study the internal control structure.
d. Gather sufficient competent evidence.

3 The general standards stress the importance of
a. evidence accumulation.
b. the personal qualities which the auditor should possess.
c. communicating the auditor’s findings to the reader.
d. all of the above.

4 The generally accepted auditing standard that requires “Adequate technical training and proficiency” is normally interpreted as requiring the auditor to have
a. formal education in auditing and accounting.
b. adequate practical experience for the work being performed.
c. continuing professional education.
d. all of the above.

5 In any case in which the CPA or the CPA’s assistants are not qualified to perform the work, a professional obligation exists to
a. acquire the requisite knowledge and skills.
b. suggest someone else who is qualified to perform the work.
c. decline the engagement.
d. any of the above.

6 A member CPA firm is required by the AICPA to belong to the SEC Practice Section if it
a. wishes to audit companies whose assets exceed $250 million.
b. does any audits.
c. does any reviews or audits.
d. audits one or more publicly-held companies.

7 If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No. 2,
a. material.
b. insignificant.
c. significant.
d. relevant.

8 The preliminary judgment about materiality is the amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users.
a. minimum
b. maximum
c. mean average
d. median average

9 When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to in SAS No. 39 as
a. the materiality range.
b. the error range.
c. tolerable materiality.
d. tolerable misstatement.

10 Why do auditors establish a preliminary judgment about materiality?
a. To help the auditor plan the appropriate evidence to accumulate.
b. So that the client can know what records to make available to the auditor.
c. To determine what level of staffing (i.e., work experience) is required for the audit.
d. None of the above.

11 If an auditor establishes a relatively low level for materiality, then the auditor will
a. accumulate more evidence than if a higher level had been set.
b. accumulate less evidence than if a higher level had been set.
c. accumulate approximately the same evidence as would be the case were a higher level set.
d. accumulate an undetermined amount of evidence.

12 After the preliminary judgment about materiality has been established, auditors may
a. not adjust it.
b. adjust it downward only.
c. adjust it upward only.
d. adjust it either downward or upward.

13 Which of the following “decisions” are relevant to the auditor’s evidence accumulation?
a. Type of audit procedure to use.
b. Number of items to examine.
c. Timing of audit procedures.
d. All of the above are relevant.

14 Audit procedures are normally performed
a. early in the accounting period being examined.
b. throughout the accounting period being examined, but with emphasis on the transactions near the end.
c. within one to three months after the close of the accounting period.
d. during all three of the above periods.

15 The third standard of fieldwork requires the auditor to accumulate sufficient competent evidence to support the opinion issued. Because of the nature of audit evidence, it is
a. unlikely the auditor will be completely convinced that the opinion is correct.
b. likely the auditor will be completely convinced that the opinion is correct.
c. unlikely the auditor will arrive at a conclusion.
d. likely that the auditor would change his/her mind about the opinion if he/she took the time to gather additional evidence.

16 Which of the following forms of evidence is most reliable?
a. General ledger account balances.
b. Confirmation of A/R balance received from a customer.
c. Internal memo explaining the issuance of a credit memo.
d. Copy of month-end adjusting entries.

17 Evidence obtained directly by the auditor is more competent than information obtained indirectly. Which of the following is not an example of the auditor’s direct knowledge?
a. Physical examination.
b. Observation.
c. Computation.
d. Inquiry.

18 When an auditor calculates the gross margin as a percent of sales and compares it with previous periods, this type of evidence is called
a. physical examination.
b. computation.
c. observation.
d. inquiry

19 Which of the following is not one of the three main reasons why the auditor should properly plan engagements?
a. To enable proper on-the-job training of employees.
b. To enable the auditor to obtain sufficient competent evidence.
c. To avoid misunderstandings with the client.
d. To help keep audit costs reasonable.

20 A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the
a. inherent risk.
b. acceptable audit risk.
c. statistical risk.
d. financial risk.

21 A measure of the auditor’s assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client’s internal control is
a. control risk.
b. acceptable audit risk.
c. statistical risk.
d. inherent risk.

22 The auditor is likely to accumulate more evidence when the audit is for a company
a. whose stock is publicly held.
b. which has extensive indebtedness.
c. which is to be sold in the near future.
d. All three of the above.

23 Which of the following is not typically included initial audit planning?
a. Client acceptance/continuation decisions.
b. Determination of the purpose of the audit.
c. Schedule engagement staff and audit specialists.
d. Perform preliminary analytical procedures.

24 Most auditors assess inherent risk as high for related parties and related-party transactions because
a. of the accounting disclosure requirement.
b. of the lack of independence between the parties.
c. both a and b.
d. it is required by generally accepted accounting principles.

25 Which of the following parties is responsible for establishing an entity’s internal controls?
a. Management.
b. Auditors.
c. Management and auditors.
d. Committee of Sponsoring Organizations.

26 For an internal audit function to be effective, it is essential that the internal audit staff
a. be independent of the operating departments.
b. be independent of the accounting department.
c. report directly to a high level of authority within the organization such as the audit committee.
d. achieve all of the above.

27 Management is often unwilling to implement an ideal system of internal controls because
a. control failures are infrequent.
b. such a system is too expensive.
c. sufficient technology does not exist to afford an ideal system.
d. risks are often overstated.

28 Internal controls can never be considered as absolutely effective because
a. their effectiveness is limited by the competency and dependability of the company’s personnel.
b. controls always have inherent weaknesses that can be exploited.
c. controls are designed to prevent and detect only material misstatements.
d. none of the above.

29 A major control available in a small company, which might not be feasible in a large company, is
a. a wider segregation of duties.
b. a voucher system.
c. fewer transactions to process.
d. the owner-manager’s personal interest and close relationship with personnel.

30 An auditor’s attempt to gain an understanding of the accounting system is typically accomplished and documented by
a. a narrative description of the system.
b. a flowchart.
c. a questionnaire.
d. using any of the above.

31 IT has several significant effects on an organization. Which of the following would not be important from an auditing perspective?
a. Organizational changes.
b. The visibility of information.
c. The potential for material misstatement.
d. None of the above; i.e., they are all important.

32 The audit procedure which is least useful in gathering evidence on significant computer processes is
a. documentation.
b. observation.
c. test decks.
d. generalized audit software.

33 Which of the following is not a benefit of using IT based controls?
a. Ability to process large volumes of transactions.
b. Ability to replace manual controls with computer-based controls.
c. Reduction in misstatements due to consistent processing of transactions.
d. Over-reliance on computer generated reports.

34 Which of the following is not a risk specific to IT environments?
a. Reliance on the functioning capabilities of hardware and software.
b. Increased human involvement.
c. Loss of data due to insufficient backup.
d. Reduced segregation of duties.

35 Which of the following is not an enhancement to internal control that will occur as a consequence of increased reliance on IT?
a. Computer controls replace manual controls.
b. Higher quality information is available.
c. Computer-based controls provide opportunities to enhance segregation of duties.
d. All of the above are enhancements.

36 Which of the following are not an application control?
a. Processing controls.
b. Output controls.
c. Hardware controls.
d. Input controls.

37 A sample in which the characteristics of the sample are the same as those of the population is a(n)
a. variables sample.
b. representative sample.
c. attributes sample.
d. random sample.

38 When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to be using
a. audit sampling.
b. representative sampling.
c. poor judgment.
d. none of the above.

39 One of the ways to eliminate nonsampling risk is through
a. proper supervision and instruction of the client’s employees.
b. proper supervision and instruction of the audit team.
c. the use of attributes sampling rather than variables sampling.
d. controls which ensure that the sample drawn is random and representative.

40 One cause of nonsampling risk is
a. ineffective use of audit procedures.
b. testing less than the entire population.
c. use of extensive tests of controls.
d. any of the above.

41 When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called
a. block sample selection.
b. haphazard selection.
c. systematic sample selection.
d. statistical selection.

42 When the auditor intends to evaluate a sample statistically, the only acceptable selection method is
a. probabilistic selection.
b. judgmental selection.
c. haphazard selection.
d. block sample selection.

43 When monetary-unit sampling has been concluded and the population is not considered acceptable, which one of the following courses of action would not be appropriate for the auditor?
a. Increase the sample size to see if this may satisfy the auditor’s tolerable misstatement requirements.
b. Increase the tolerable misstatement amounts so that the error bounds are acceptable.
c. Request the client to correct the population.
d. Refuse to give an unqualified opinion.

44 Both sampling and nonsampling risks are associated with
a. tests of controls.
b. substantive tests of transactions.
c. tests of details of balances.
d. all of the above.

45 Tolerable misstatements for overstatements and understatements
a. may be different amounts.
b. must be different amounts.
c. must be set at the same amount.
d. will be determined by the statistical tables.

46 Monetary-unit sampling is most commonly used when
a. zero or few exceptions are expected.
b. a dollar result is desired.
c. the population data are maintained on computer files.
d. all of the above.

47 Tests for rates of occurrence are appropriately used in all but which of the following situations?
a. Testing of internal controls.
b. Substantive testing of transactions.
c. Substantive testing of details of balances.
d. Tests for rates of occurrence are appropriate for all of the above.

48 Which of the following is not a type of statistical method that provides results in dollar terms?
a. Variables sampling.
b. Attributes sampling.
c. Monetary-unit sampling.
d. Sampling with probability proportional to size.

49 SAS 99 provides U.S. auditors expanded guidance

a. for detecting material fraud
b. how to strengthen internal control
c. audit sampling
d. both a and b

50 Fraud can be difficult to detect because it often involves concealment through falsification of documents or collusion.

a. true
b. false

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The responses to the audit questions mostly provide an explanation, and about 25% of the question responses are cited.

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Accounting Problems: 1. Paulson Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year... (questions continued in attachment)

Please see attached file for complete details:

1. Paulson Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year:

Paulson estimated that 40,000 direct labor hours and 20,000 machine hours would be worked during the year. The predetermined overhead rate per machine hour will be:
A) $1.60.
B) $2.10.
C) $1.00.
D) $1.05.

2. Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves?
A) machine-hours
B) power consumption
C) direct labor-hours
D) machine setups

3. Nil Co. uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000, with actual direct labor cost of $325,000. For the year, manufacturing overhead was:
A) overapplied by $20,000.
B) underapplied by $22,000.
C) overapplied by $30,000.
D) underapplied by $30,000.

Use the following to answer question 4:

Leija Manufacturing Company uses a job-order costing system and started the month of March with one job in process (Job #359). This job had $500 of cost assigned to it at this time. During March, Leija assigned production costs as follows to the jobs worked on during the month:

During March, Leija completed and sold Job #359. Job #360 was also completed but was not sold by month end. Job #361 was not completed by the end of March.

4. What is Leija's cost of goods manufactured for March?
A) $ 6,500
B) $14,100
C) $14,600
D) $16,500

5. Which of the following entries or sets of entries would record sales of $200,000 for the month of July of goods costing $119,000?
A)

B)

C)

D)

6. Pinnini Co. uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. Last year, Pinnini Company incurred $225,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied $14,500 for the year. If the predetermined overhead rate was $5.00 per direct labor hour, how many hours did the company work during the year?
A) 45,000 hours
B) 47,900 hours
C) 42,100 hours
D) 44,000 hours

Use the following to answer question 7:

Munos Publishing Company uses a job-order costing system to collect costs related to the manufacture of specialty publications for corporate training.

7. What journal entry would Munos make to record the completion of Job KN668 at a total cost of $7,600?
A)

B)

C)

D)

8. The balance in the Work in Process account equals:
A) the balance in the Finished Goods inventory account.
B) the balance in the Cost of Goods Sold account.
C) the balances on the job cost sheets of uncompleted jobs.
D) the balance in the Manufacturing Overhead account.

Use the following to answer question 9:

Maverick Company had the following transactions last year:

1) Raw materials purchased on account totaled $165,000.
2) Raw materials issued from storeroom, $140,000 (90% direct materials, 10% indirect materials).
3) Factory utility costs incurred, $35,000.
4) Employee salaries and wages incurred, $200,000 (80% direct labor, 10% indirect labor and 10% selling and administrative).
5) Depreciation on factory equipment, $30,000.
6) Depreciation on autos used by the sales staff, $15,000.
7) Overhead was applied to production at a rate of 50% of direct labor cost.
8) Goods costing $310,000 were transferred from Work in Process to Finished Goods.

9. The cost of goods manufactured was:
A) $366,000.
B) $420,000.
C) $385,000.
D) $310,000.

Use the following to answer questions 10-11:

Madtack Company's beginning and ending inventories for the month of November were as follows:

Madtack applies manufacturing overhead cost to jobs at the rate of 70% of direct labor cost incurred. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year.

10. Madtack Company's manufacturing overhead for November was:
A) overapplied by $8,000.
B) underapplied by $8,000.
C) overapplied by $132,000.
D) underapplied by $132,000.

11. Madtack Company's total manufacturing cost for November was:
A) $502,000.
B) $510,000.
C) $363,000.
D) $495,000.

12. A proper journal entry to record issuing raw materials to be used on a job would be:
A)

B)

C)

D)

13. Jameson Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for the next year:

Jameson estimates that 24,000 direct labor hours will be worked during the year. The predetermined overhead rate per hour will be:
A) $2.00
B) $2.79
C) $3.00
D) $4.00

14. In a job order cost system, the use of indirect materials previously purchased is recorded as a decrease in:
A) Raw Materials inventory.
B) Work in Process inventory.
C) Manufacturing Overhead.
D) Finished Goods inventory.

15. The use of the FIFO method would result in the quantity schedule of a company's production report showing:
A) units transferred out as one amount with no distinction made for beginning inventory.
B) units transferred out as two amounts?one for beginning inventory and the other for units started and completed during the month.
C) units transferred out as two amounts?one for units completed during the period and one for ending inventory.
D) units transferred out as three amounts?one for beginning inventory, one for units started and completed during the period, and one for ending inventory.

Use the following to answer question 16:

Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct labor cost. Any under- or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During August, the following transactions were recorded by the company:

16. The entry to dispose of the under- or overapplied overhead cost for the month would include:
A) a credit of $100 to Cost of Goods Sold.
B) a credit of $6,000 to Manufacturing Overhead.
C) a debit of $6,000 to Cost of Goods Sold.
D) A credit of $100 to the Manufacturing Overhead Account.

17. Equivalent units for a process costing system using the weighted-average method would be equal to:
A) units completed during the period and transferred out.
B) units started and completed during the period plus equivalent units in the ending work in process inventory.
C) units completed during the period less equivalent units in the beginning inventory, plus equivalent units in the ending work in process inventory.
D) units completed during the period plus equivalent units in the ending work in process inventory.

Use the following to answer questions 18-19:

Barker Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 300 units. The costs and percentage completion of these units in beginning inventory were:

The ending inventory was 85% complete with respect to materials and 20% complete with respect to conversion costs.

Note: Your answers may differ from those offered below due to rounding error. In all cases, select the answer that is the closest to the answer you computed. To reduce rounding error, carry out all computations to at least three decimal places.

18. The cost of ending work in process inventory in the first processing department according to the company's cost system is closest to:
A) $32,501
B) $7,647
C) $38,237
D) $19,773

19. The cost per equivalent unit for materials for the month in the first processing department is closest to:
A) $26.35
B) $25.85
C) $26.65
D) $25.56

20. On November 1, Riser Company had 5,000 units of work in process in Department No. 1 that were 100% complete with respect to material costs and 20% complete with respect to conversion costs. During November, 32,000 units were started in Department No. 1 and 34,000 units were completed and transferred to Department No. 2. The work in process on November 30, was 100% complete with respect to material costs and 40% complete with respect to conversion costs. By what amount would the equivalent units for conversion costs for the month of November differ if the FIFO method were used instead of the weighted-average method?
A) 1,000 decrease.
B) 3,000 decrease.
C) 1,500 decrease.
D) 2,200 decrease.

Use the following to answer question 21:

Guo Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 500 units. The costs and percentage completion of these units in beginning inventory were:

The ending inventory was 85% complete with respect to materials and 75% complete with respect to conversion costs.

Note: Your answers may differ from those offered below due to rounding error. In all cases, select the answer that is the closest to the answer you computed. To reduce rounding error, carry out all computations to at least three decimal places.

21. The total cost transferred from the first processing department to the next processing department during the month is closest to:
A) $623,600
B) $638,122
C) $614,200
D) $569,305

22. Salter Company uses the FIFO method in its process costing system. The company reported 25,000 equivalent units for materials last month. The company's beginning work in process inventory consisted of 6,000 units, 40% complete with respect to materials. The ending work in process inventory consisted of 4,000 units, 70% complete with respect to materials. The number of units started during the month was:
A) 25,400 units.
B) 23,400 units.
C) 22,600 units.
D) 24,600 units.

Use the following to answer question 23:

Muzyka Corporation uses the FIFO method in its process costing system. Data concerning the first processing department for the most recent month are listed below:

Note: Your answers may differ from those offered below due to rounding error. In all cases, select the answer that is the closest to the answer you computed. To reduce rounding error, carry out all computations to at least three decimal places.

23. What are the equivalent units for conversion costs for the month in the first processing department?
A) 5,600
B) 5,060
C) 4,500
D) 320

Use the following to answer question 24:

Hache Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below:

Note: Your answers may differ from those offered below due to rounding error. In all cases, select the answer that is the closest to the answer you computed. To reduce rounding error, carry out all computations to at least three decimal places.

24. What are the equivalent units for conversion costs for the month in the first processing department?
A) 5,900
B) 4,400
C) 4,850
D) 450

25. Which of the following characteristics applies to process costing, but does not apply to job order costing?
A) the need for averaging.
B) the use of equivalent units of production.
C) separate, identifiable jobs.
D) the use of predetermined overhead rates.

26. Onyemah Company uses the FIFO method in its process costing system. Operating data for the Brazing Department for the month of November appear below:

What were the equivalent units for conversion costs in the Brazing Department for November?
A) 42,040
B) 39,120
C) 35,600
D) 39,400

27. Carrington Company produces canned vegetable soup. The company uses the weighted-average method in its process costing system. The company sold 300,000 units in January. Data concerning inventories follow:

What were the equivalent units for conversion costs for January?
A) 285,000 units.
B) 303,000 units.
C) 300,000 units.
D) 309,000 units.

Use the following to answer question 28:

Carmon Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 700 units. The costs and percentage completion of these units in beginning inventory were:

The ending inventory was 70% complete with respect to materials and 35% complete with respect to conversion costs.

Note: Your answers may differ from those offered below due to rounding error. In all cases, select the answer that is the closest to the answer you computed. To reduce rounding error, carry out all computations to at least three decimal places.

28. The cost per equivalent unit for materials for the month in the first processing department is closest to:
A) $23.23
B) $19.94
C) $21.85
D) $21.20

Use the following to answer question 29:

Lumb Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below:

Note: Your answers may differ from those offered below due to rounding error. In all cases, select the answer that is the closest to the answer you computed. To reduce rounding error, carry out all computations to at least three decimal places.

29. The cost of ending work in process inventory in the first processing department according to the company's cost system is closest to:
A) $32,892
B) $23,325
C) $17,413
D) $38,696

30. Stover Company uses the weighted-average method in its process costing system. Information concerning Department A for the month of June follows:

All materials are added at the beginning of the process. The cost per equivalent unit for materials costs is closest to:
A) $0.83.
B) $0.85.
C) $0.97.
D) $1.01.

31. A key concept of the Just-In-Time is:
A) the raw materials, work in process, and finished goods inventories of manufacturing companies act as buffers so that operations can proceed smoothly even if suppliers are late with deliveries or a department is unable to operate for a brief period due to breakdowns or other reasons.
B) the use of many suppliers in order to ensure rapid delivery of materials for production.
C) the maintenance of a stock of raw materials so that defective materials can be replaced quickly in order to maintain a high rate of productivity.
D) inventories are costly to carry and create operational problems.

32. The organization chart:
A) shows lines of authority within an organization.
B) shows whether or not the organization is decentralized.
C) shows both formal and informal channels of communication between managers.
D) none of these.

33. The term throughput means:
A) the length of time required to turn materials into products.
B) the total volume of production through a facility during a period.
C) the time involved in changing equipment, moving material about, and putting forms and jigs in place to accommodate the production of a different item.
D) production of goods without the accumulation of raw materials or work in process inventories.

34. The Standards of Ethical Conduct for Management Accountants developed by the Institute of Management Accountants state that communication of ethical problems to authorities or individuals not employed or engaged by the organization is:
A) not considered appropriate, except where legally prescribed.
B) always appropriate since managers of the organization are unlikely to take actions necessary to resolve the problems.
C) sometimes appropriate, depending on the actions of management.
D) sometimes appropriate if the people involved are at the upper levels of the organization.

35. Delegating decisions to lower levels of management results in increased:
A) profitability.
B) centralization.
C) control.
D) decentralization.

36. Higgins Company's manufacturing overhead is 40% of its total conversion costs. If direct labor is $18,000 and if direct materials are $24,000, the manufacturing overhead is:
A) $27,000.
B) $28,000.
C) $16,000.
D) $12,000.

37. Haaker Inc. is a merchandising company. Last month the company's cost of goods sold was $87,000. The company's beginning merchandise inventory was $21,000 and its ending merchandise inventory was $18,000. What was the total amount of the company's merchandise purchases for the month?
A) $84,000
B) $126,000
C) $90,000
D) $87,000

38. Which of the following would be classified as an appraisal cost on a quality cost report?
A) Re-entering data because of keying errors.
B) Quality data gathering, analysis, and reporting.
C) Debugging software errors.
D) Test and inspection of in-process goods.

Use the following to answer question 39:

The following data (in thousands of dollars) have been taken from the accounting records of Karmin Corporation for the just completed year.

Use these data to answer the following series of questions.

39. The net operating income for the year (in thousands of dollars) was:
A) $60.
B) $290.
C) $110.
D) $10.

40. The following costs were incurred in April:

Prime costs during the month totaled:
A) $53,000.
B) $67,000.
C) $38,000.
D) $103,000.

41. The property taxes on the factory building for a manufacturer would be an example of:

Prime Cost Conversion Cost
A) No Yes
B) Yes No
C) Yes Yes
D) No No

42. In a manufacturing company, direct labor costs combined with direct materials costs are known as:
A) period costs.
B) conversion costs.
C) prime costs.
D) opportunity cost.

43. Which of the following would be classified as an appraisal cost on a quality cost report?
A) Test and inspection of in-process goods.
B) Technical support provided to suppliers.
C) Debugging software errors.
D) Audits of the effectiveness of the quality system.

44. Which of the following combinations of costs make up prime cost?
A) Direct materials cost and manufacturing overhead cost.
B) Direct labor cost and manufacturing overhead cost.
C) Marketing cost and administrative costs.
D) Direct materials cost and direct labor cost.

45. The salary paid to the maintenance supervisor in a manufacturing plant is an example of:
Product Cost Manufacturing Overhead
A) No Yes
B) Yes No
C) Yes Yes
D) No No

Use the following to answer question 46:

Hampton Corp. reported the following data for last year:

46. The prime cost is:
A) $800.
B) $900.
C) $500.
D) $400.

47. Which of the following is an element of prime cost?

Direct materials Indirect materials
A) Yes No
B) Yes Yes
C) No Yes
D) No No

Use the following to answer question 48:

Fackler Company's quality cost report is to be based on the following data:

48. What would be the total appraisal cost appearing on the quality cost report?
A) $130,000
B) $152,000
C) $146,000
D) $219,000

49. Which of the following costs would be included both as part of prime cost and as part of conversion cost?
A) Direct materials.
B) Direct labor.
C) Manufacturing overhead.
D) None of these.

Use the following to answer question 50:

Eaglin Company's quality cost report is to be based on the following data:

50. What would be the total external failure cost appearing on the quality cost report?
A) $259,000
B) $110,000
C) $119,000
D) $515,000

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