Review

Question 1

Which of the following costs is deducted from revenues of a manufacturing company in order to determine gross margin, but not deducted from revenues to determine contribution margin?

Answer 1

Fixed manufacturing

Gross margin under GAAP equals revenues minus both fixed and variable manufacturing cost of goods sold. Contribution margin under variable costing equals revenues minus both variable manufacturing cost of goods sold and variable selling and administrative costs. Therefore, the cost category which is deducted from revenues of a manufacturing company in order to determine gross margin, but not deducted from revenues to determine contribution margin, is fixed manufacturing.

Question 2

Which of the following characteristics represent an advantage of the internal rate of return technique over the accounting rate of return technique in evaluating a project?

I. Recognition of the project’s salvage value

II. Emphasis on cash flows

III. Recognition of the time value of money

Answer 2

Emphasis on cashflow

Recognition of time value of money

Both the internal rate of return technique and the accounting rate of return technique consider the effects of a project’s salvage value.

The internal rate of return technique is based on cash flows while the accounting rate of return technique is based on accrual-based accounting income.

In addition, the internal rate of return technique uses present value techniques that take into account the time value of money.

The accounting rate of return technique treats cash flows in the future in the same manner as current cash flows, ignoring the time value of money.

Question 3

Del Co. has fixed costs of $100,000 and breakeven sales of $800,000. What is its projected profit at $1,200,000 sales?

Answer 3

50,000

If breakeven is when sales are $800,000 and fixed costs are $100,000, variable costs are the difference of $700,000 or 7/8 of sales. If sales were to increase to $1,200,000, variable costs, at 7/8, would be $1,050,000, resulting in a contribution margin of $150,000. This is reduced by fixed costs of $100,000 to give a profit of $50,000.

Question 4

Which of the following methods should be used if capital rationing needs to be considered when comparing capital projects?

Answer 4

Profitability Index

Capital rationing imposes a constraint on capital budgeting in that not all independent projects may be undertaken, and must be ranked.

Profitability index is the ratio of the present value of the cash inflows to the initial cost of a project.

Profitability index is the best method for initial ranking of independent projects under capital rationing.

Question 5

Which of the following risks can be minimized by requiring all employees accessing the information system to use passwords?

Collusion.

Data entry errors.

Failure of server duplicating function.

Firewall vulnerability.

Answer 5

Firewall

Firewalls can restrict access to information systems by users. Requiring employee use of passwords helps ensure that only authorized individuals can access the information system.

Question 6

Which of the following performance measures may lead a manager of an investment center to forgo investments that could benefit the company as a whole?

Return on investment.
Residual income.
Profitability index.
Economic value added.

Answer 6

ROI

A performance measure that could lead a manager to forgo a profitable investment would focus on profit percentage instead of absolute profit.

Return on investment (ROI) measures the profitability of an investment in relation to the average invested capital.

An investment may be profitable, but if the investment would decrease the company’s overall ROI it may be forgone.

Question 7

Freely fluctuating exchange rates perform which of the following functions?

Answer 7

Freely fluctuating exchange rates help avoid imbalances in a country’s balance of payments.

If a country imports substantially more than it exports, its currency will depreciate and future imports will be more expensive.

This has the effect of reducing future imports and pushes the balance of payments into equilibrium.

Conversely, if a country exports more than it imports, its currency will appreciate and its products will be more expensive for foreign purchasers.

This reduces a country’s exports over time and pushes the balance of payments into equilibrium.

Freely fluctuating exchange rates adjust the value of currencies to correct imbalances in trade and investment between countries.

Depending on the direction of fluctuation, freely fluctuating exchange rates may increase the cost of imports and decrease the value of exports, or vice versa.

Freely fluctuating exchange rates do not impose constraints on the domestic economy since a country’s fiscal policies can impact the value of its currency.

Freely fluctuating exchange rates increase the need for foreign currency hedging because future changes in exchange rates are not as certain under a freely fluctuating system as they are under a fixed exchange rate system.

Question 8

International trade has increased greatly in recent decades as a result of all of the following, except:

Answer 8

Drastic reductions on non-tariff barriers to trade (such as health and safety standards).

Question 9

What is the effect on prices of U.S. imports and exports when the dollar depreciates?

Answer 9

When the dollar depreciates, additional dollars are required to buy the same amount of foreign currency required to pay for imports. Accordingly, import prices increase. Since the dollar’s value declines and U.S. goods are priced in dollars, U.S. exports become cheaper for foreign consumers.

Question 10

The rate of unemployment caused by changes in the composition of employment opportunities over time is referred to as the:

Answer 10

Structural unemployment occurs when workers lose their jobs as a result in a change in the demand for goods or services. This would include a change in the composition of employment opportunities as opportunities will be created in some sectors but workers will lose jobs in other sectors.

Question 11

If country A increases tariffs on agricultural products from country B,

Answer 11

Restrictions on exports from B to A make B poorer (lower export revenue), reducing how much it will import of all products, including non-agricultural products from A. Country B will supply fewer agricultural products at higher prices, both pushing prices higher. By exporting fewer agricultural products to A, there will be more supply of them in B, lowering their prices there.

Question 12

Key difficulties in macroeconomic management are all of the following, except

Many policy tools impact the macroeconomy with lags that are long and variable.

Economists do not have reliable estimates of the effects of various policy tools on macroeconomic goals (e.g., if we reduce interest rates by x, unemployment will fall by y, within z months).

The effects of some policy tools may help reach some macroeconomic goals (unemployment), but make it harder to reach other macroeconomic goals (inflation).

Voters have historically voted out elected officials that back large enough federal deficits or low enough interest rates.

Answer 12

here is little evidence of voters consistently voting out elected officials that deliver deficits (low taxes and high government expenditures) and that favor lower interest rates. Policy tools can have opposite effects on different goals (i.e., lowering interest rates may lower unemployment but increase inflation), and also the size and timing of the effects of policy are uncertain.

Question 13

What is derived demand and invisible hand

Answer 13

The demand for the resources used to produce product A is derived from the demand for product A. In other words, increased demand for apple pies increases demand for apples.

If supply of product A was increasing, it would suggest that product A was in an expanding industry; this does not explain an increase in the demand for resources used to produce product A.

The influences of both supply and demand operate the “invisible hand” of the marketplace; only one is mentioned. The elasticity of product A has little to do with the demand for resources used to produce product A.

Question 14

A company manufactures goods in Esland for sale to consumers in Woostland. Currently, the economy of Esland is booming and imports are rising rapidly. Woostland is experiencing an economic recession, and its imports are declining. How will the Esland currency, $E, react with respect to the Woostland currency, $W?

Answer 14

Esland’s increased demand for Woostland’s goods increases demand for $W, the currency required to pay for Woostland’s goods. Esland’s additional demand for $W will increase the price of $W in terms of $E. Since $W will be more expensive in terms of $E, the value of $E will decline with respect to $W.

Question 15

What would be likely to cause the currency of country A to depreciate relative to the currency of country B?

Answer 15

During financial crises, the currencies of stable countries appreciate relative to those of other countries. Lower inflation leads currencies to appreciate. Higher real interest rates lead currencies to appreciate. Trade surpluses lead currencies to appreciate.

Question 16

A significant decline in the exchange rate of the U.S. dollar generally will have which of the following effects

Answer 16

A significant decline in the U.S. dollar tends to hurt U.S. importers and benefit U.S. exporters, while making foreign goods more expensive for U.S. consumers. U.S. importers are hurt because they must spend more dollars to buy the same amount of goods, while exporters benefit because foreign markets have more buying power against the weakened U.S. dollar and may buy more U.S. exports.

Question 17

To maintain a fixed exchange rate, a country may have to do all of the following except:

Answer 17

Selling foreign reserves causes one’s currency to appreciate, which is the opposite of what a country with a trade surplus needs if it wants to maintain exchange rate stability. Countries that want stable exchange rates may effectively have to forgo independent monetary policies. Countries with trade deficits need to take actions to prevent currency depreciation, such as increasing interest rates. To maintain stable exchange rates, countries need to maintain similar inflation rates, and thus to increase interest rates if their inflation rates are higher.

Question 18

A country recently experienced a drop in consumer purchases and a rise in business inventories of durable goods. Wages grew slowly and unemployment increased. Business investment in plant and equipment dropped sharply and profits fell. Both interest rates and stock prices fell. Which of the following statements best represents the country’s current economy?

Answer 18

In a classic recession, inventories bulge as consumers curtail spending, unemployment increases as businesses slow production to meet less demand, and wages grow slowly, if at all. Businesses curtail investment in capital projects, resulting in less demand for equipment that makes goods as well as financing—resulting in lower interest rates and stock prices Economic stagflation is characterized by high inflation, slow economic growth, and high unemployment. Since prices rise in an inflationary period, “exiting an inflationary period” is not consistent with the scenario where wages grew slowly. Exiting a depression period (or entering a recovery period) is characterized by scant inventories as consumers buy more, decreasing unemployment, higher investment in capital projects, and thus higher interest rates and stock prices.

Question 19

A hospital is comparing last year’s emergency rescue services expenditures to those from 10 years ago. Last year’s expenditures were $100,500. Ten years ago, the expenditures were $72,800. The CPI for last year is 168.5 as compared to 121.3 ten years ago. After adjusting for inflation, what percentage change occurred in expenditures for emergency rescue services?

Answer 19

.61%

Question 20

When economy-wide interest rates climb substantially

Answer 20

Banks with many variable-rate loans benefit from higher interest rates earlier than banks with many fixed-rate loans, since rates on those loans must wait until maturity to adjust. Long-term liabilities reprice more slowly (causing lower interest expense) than short-term liabilities. Long-term loans will reprice to higher interest rates more slowly than short-term loans. The increases in interest income are small (since they have relatively many fixed-rate loans) and increases in interest expense are large (since they have many variable-rate liabilities).

Question 21

Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price per unit to obtain a 15% profit margin on sales using the traditional markup calculation?

Answer 21

With traceable costs of $990,000 for 500 units, the cost is $1,980 per unit. With a target profit margin of 15% of sales, the cost must be the remaining 85%. As a result, if $1,980 is 85% of the sales price, the sales price will be $1,980/85% or $2,329 per unit

Question 22

The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?

Answer 22

Labor usage

Question 23

Under the 2-variance method for analyzing overhead, which of the following variances consists of both variable and fixed overhead elements?

Answer 23

Under the 2 variance method, the controllable variance is the difference between actual overhead incurred and budgeted overhead based on actual volume produced, which would be standard hours (SH) x the predetermined variable overhead rate (PVOHR) plus budgeted fixed overhead.

As a result, it includes both variable and fixed components. The volume variance measures the difference between fixed overhead applied, which is SH x PFOHR (fixed) and includes fixed overhead only.

Question 24

Which of the following is one of the four perspectives of a balanced scorecard?

Just in time.
Innovation.
Benchmarking.
Activity-based costing.

Answer 24

Innovation (sometimes called “Learning and Growth”) is one of the four perspectives on the balanced scorecard.

The balanced scorecard assesses an organization’s performance by analyzing financial information, customer satisfaction, internal processes, and innovation.

Question 25

A job order cost system uses a predetermined factory overhead rate based on expected volume and expected fixed cost. At the end of the year, underapplied overhead might be explained by which of the following situations?

Answer 25

actual volume - less than normal

actual fixed costs - greater than expected

The fixed overhead application rate is equal to expected fixed costs divided by expected volume. If both actual fixed costs and actual volume are equal to expected amounts, overhead applied will be equal to actual overhead. If actual volume is greater than expected amount or if actual fixed overhead is lower than the expected amount, the amount of overhead applied, which is actual volume times the predetermined rate, will exceed the actual amount and fixed overhead will be overapplied. If either actual volume is lower than expected or actual fixed costs are greater than expected, the amount of overhead applied will be lower than the actual amount and fixed overhead will be underapplied.

Question 26

Which of the following events would decrease the internal rate of return of a proposed asset purchase?

Answer 26

decrease tax credits on the assets

The internal rate of return (IRR) is the interest rate at which the present value of the future cash flows from the investment is equal to the net investment. The IRR is increased by an increase in cash flows or a decrease in the net investment or decreased by a decrease in cash flows or an increase in the net investment. A decrease in tax credits on the asset increases the net investment, which decreases the IRR. A decrease in related working capital requirements implies either a reduction in the net investment or an increase in cash flows, either of which would increase the IRR. The payback period is shortened by either decreasing the investment or increasing the cash flows, either of which would increase the IRR. Using accelerated depreciation would reduce taxes in the earlier periods, when the present value of each dollar is relatively high, and increase taxes in future periods, when the present value of each dollar is relatively low. As a result, this increases the present value of future cash flows, increasing the IRR.

Question 27

A company invests $100,000 in property. The company has a contract to sell it for $120,000 in one year. The bank has a guaranteed interest rate of 10%. What is the net present value of the company’s investment in the property?

Answer 27

9091

120,000 / 1.1 = 109,091

• initial investment 100,000 = 9091
  Net present value is the difference between the present value of the proceeds from the cash flows generated by an investment, including its sale, and the initial cost of the investment.

This investment will generate $120,000 in proceeds at the end of one year. At an interest rate of 10%, the present value would be $120,000/1.10 or $109,091. Compared to the initial investment of $100,000, the net present value is $9,091.

Question 28

How are depreciations and taxes considered in the capital budgeting process

Answer 28

Capital budgeting is based on relevant cash flows

These are cashflows that will occur if you yes - take on tis project

They are analyzed on an after tax basis

depreciation is used to determine the tax cost or benefits therefore it is used in the capital budgeting process

Question 29

Which of the following metrics equates the present value of a project’s expected cash inflows to the present value of the project’s expected costs?

Answer 29

IRR

Question 30

Bates Corp. has $100,000 in bonds payable with a fair market value of $120,000. It also has 1,000 shares of common stock issued at $50 per share with a fair market value of $80 per share. What amount represents the corporation’s market capitalization?

Answer 30

80,000

Market capitalization is the fair market value of the equity. 1,000 shares x $80/share = $80,000. Debt is not part of market capitalization. Book or par value is irrelevant to market capitalization.

Question 31

Which of the following inputs would be most beneficial to consider when management is developing the capital budget?

Answer 31

Profit center equipment requests.

Question 32

The discount rate (hurdle rate of return) must be determined in advance for the

Answer 32

NET PRESENT VALUE

Question 33

The discount rate (hurdle rate of return) must be determined in advance for the

Answer 33

Permits EDI transactions to be sent to trading partners as transactions occur.

Question 34

Which of the following methods is best suited for evaluating the performance of a firm’s capital in any given year?

Answer 34

Economic value added (EVA) is the net operating profit after taxes less the cost of financing. None of the other measures adjust for the cost of financing as well as EVA does.

Question 35

Capital rationing imposes a constraint on capital budgeting in that not all independent projects may be undertaken, and must be ranked.

Answer 35

Profitability index is the best method for initial ranking of independent projects under capital rationing.

Question 36

hat would be the primary reason for a company to agree to a debt covenant limiting the percentage of its long-term debt?

Answer 36

To reduce the interest rate on the bonds being sold.

Question 37

Selected information concerning the operations of a company for the year ended December 31 is as follows:

 Units produced	          20,000    
 Units sold	          18,000    
 Direct materials used	          $80,000    
 Direct labor incurred	          $40,000    
 Fixed factory overhead	          $50,000    
 Variable factory overhead	          $24,000    
 Fixed selling and administrative expenses	          $60,000    
 Variable selling and administrative expenses         	          $9,000    

Work-in-process inventories at the beginning and end of the year were zero. What was the company’s finished goods inventory cost at December 31 under the variable (direct) costing method?

Answer 37

14,400

The finished goods inventory at December 31 is computed by allocating the total production costs across the total units produced in this year. Under the variable method, total production costs are computed as follows:

Production Costs = Direct Materials + Direct Labor + Variable Factory Overhead

Question 38

Wren Co. manufactures and sells two products with selling prices and variable costs as follows:

A B

Selling price $18.00 $22.00
Variable costs $12.00 $14.00

Wren’s total annual fixed costs are $38,400. Wren sells four units of A for every unit of B. If operating income last year was $28,800, what was the number of units Wren sold?

Answer 38

10,500

ince there are two products, a synthetic composite unit, or batch of units, is used to determine the total number of units sold. The composite unit represents each batch of units sold - four units of A for every unit of B. The selling price for the composite unit is $94 [($18 x 4) + ($22 x 1)] and the variable cost is $62 [($12 x 4) + ($14 x 1)]. Each composite unit has a contribution margin of $32 ($ 94 - 62).

The total contribution margins must yield enough proceeds to offset the total fixed costs and operating income, or $67,200 ($38,400 + 28,800). Dividing the total contribution margin by the contribution margin per unit yields the number of composite units sold.

Composite Units Sold = Total Contribution Margin ÷ Contribution Margin Per Unit

Composite Units Sold = $67,200 ÷ $32

Composite Units Sold = 2,100

Each composite unit represents five actual units (four units of A and one unit of B). Therefore, the sale of 2,100 composite units represents 10,500 actual units sold (2,100 composite units x 5 actual units per composite unit).

Question 39

Brewster Co. has the following financial information:

Fixed costs $20,000
Variable costs 60%
Sales price $50

What amount of sales is required for Brewster to achieve a 15% return on sales?

Answer 39

80,000

he amount of sales required to achieve a 15% return on sales is computed using the following relationship.

(Amount of Sales) - (Variable Costs) - (Fixed Costs) = (Return on Sales)

Let n be the amount of sales. Variable costs are 60% of sales, or 0.6n. Return on sales must be 15% of sales, or 0.15n.

n - 0.6n - $ 20,000 = 0.15n

This is rearranged as:

n = $ 80,000

Brewster will achieve a 15% return on sales when the amount of sales is $80,000.

Question 40

II III

Breakeven point is calculated by dividing fixed costs by the contribution margin per unit. Since the contribution margin will be different for different products, breakeven point can only be calculated for a multiproduct company by assuming that the sales mix remains constant. In addition, sales price and variable cost per unit are also assumed to remain constant, which is necessary to determine the contribution margin. In a variable costing system, all fixed costs are considered period costs and, as a result, it does not affect breakeven regardless of whether sales and production volumes are equal or not.

Answer 40

In calculating the breakeven point for a multiproduct company, which of the following assumptions are commonly made when variable costing is used?

I. Sale volume equals production volume.

II. Variable costs are constant per unit.

III. A given sales mix is maintained for all volume changes.

Question 41

A company’s target gross margin is 40% of the selling price of a product that costs $89 per unit. The product’s selling price should be

Answer 41

148.33

Question 42

Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of safety of $80,000. What is Cott’s fixed cost?

Answer 42

24,000

Total sales minus break-even sales equals the margin of safety.

Because Cott has total sales of $200,000 and a margin of safety of $80,000, break-even sales must be $120,000.

Break-even sales equals fixed costs over the contribution margin ratio.

Here, that means $120,000 = Fixed costs / 20%.

Because $24,000 divided by 20% equals $120,000, fixed costs must be $24,000.

Question 43

Dowell Co. manufactures a wooden item. Which of the following is included with the inventoriable cost under absorption costing and excluded from the inventoriable cost under variable costing

Cost of scrap pieces of lumber.

Straight-line depreciation on factory equipment.

Cost of electricity used to operate production machinery.

Wages of assembly line personnel.

Answer 43

Inventoriable costs under variable costing include only variable product costs, direct materials, direct labor (such as wages of assembly line personnel), and variable factory overhead. Examples of variable overhead would include the cost of electricity used to operate production machinery and the cost of scrap pieces of lumber. Inventoriable costs under absorption costing include both variable product costs and fixed factory overhead. An example of fixed factory overhead would be straight-line depreciation on factory equipment.

Question 44

Select Co. had the following 20X4 financial statement relationships:

Asset turnover 5
Profit margin on sales 0.02

What was Select’s 20X4 percentage return on assets?

Answer 44

10

With a profit margin of .02, profit is equal to 2% of sales. With an asset turnover of 5, average assets are equal to 1/5, or 20%, of sales. The return on assets is profit divided by average assets. As a result, return on assets is 2% of sales divided by 20% of sales or 10%.

Expanded Explanation:
Asset turnover = Sales / Assets (or average assets)
Return on assets = Net income / Average total assets
Profit margin on sales = Net income / Net sales

We are given profit margin on sales = 0.02 (or 2%). That means Net income / Net sales = 2%. Let’s say net sales are 100 and net income is 2. It doesn’t matter what numbers we use as long as the 2% relationship is preserved.

We are also given asset turnover = 5. That means Sales / Assets = 5. With Sales of 100, that would mean 100 / x = 5. In other words, in the example we’re constructing that preserves all these ratios, Assets is 20.

Question 45

A company has $1,500,000 in current assets and $500,000 in current liabilities. The company’s current inventory level is $250,000, and it plans to issue short-term debt to increase inventory. What is the largest amount of short-term debt the company may issue to increase inventory without dropping the current ratio below 2.0?

Answer 45

500,000

Correct! The current ratio is current assets divided by current liabilities; thus, the current ratio is currently $1,500,000 / $500,000 = 3. As the short-term debt will all be used to increase inventory, the increase in short-term debt and the increase in inventory are equal. Given that the desired current ratio is known, one can solve for the debt increase:

Present current assets + increase in inventory) / (present short-term liabilities + increase in short-term debt) = 2.
($1,500,000 + increase in short-term debt) / ($500,000 + increase in short-term debt) = 2.
$1,500,000 + increase in short-term debt = 2 x ($500,000 + increase in short-term debt)
$1,500,000 + increase in short-term debt = $1,000,000 + 2 x increase in short-term debt
$1,500,000 - $1,000,000 = 2 x increase in short-term debt - increase in short-term debt
$500,000 = increase in short-term debt
Alternatively, one may try each of the four response options until the correct one is found by adding the debt increase to both the current assets and current liabilities until a current ratio of 2 is found. ($1,500,000 + $500,000) / ($500,000 + $500,000) = 2.

Question 46

In connection with a standard cost system being developed by Flint Co., the following information is being considered with regard to standard hours allowed for output of one unit of product:

Hours

Average historical performance for the past three years 1.85
Production level to satisfy average consumer demand over a seasonal time span 1.60
Engineering estimates based on attainable performance 1.50
Engineering estimates based on ideal performance 1.25

Answer 46

1.5

With a goal of measuring controllable inefficiencies, Flint would not use historical performance, since past performance may have been neither efficient nor inefficient. Nor would Flint use the level necessary to satisfy average consumer demand over a seasonal time span as a function of efficient or inefficient performance. Flint would not use ideal standards since they are not attainable and involve the elimination of uncontrollable inefficiencies as well as controllable ones. Flint would use engineering estimates based on the current attainable performance of 1.50 hours per unit.

Question 47

Which of the following statements most likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?
YOUR ANSWER WAS CORRECT:
Random error associated with processing similar transactions in different ways is usually greater.

It is usually more difficult to compare recorded accountability with physical count of assets.

Attention is focused on the accuracy of the programming process rather than errors in individual transactions.

It is usually easier for unauthorized persons to access and alter the files.

Answer 47

It is often easier to detect manipulation of a manually-prepared file vs. manipulation of a microcomputer-prepared file. In addition, a person who wishes to alter manual-prepared files is limited by physical constraints on file access, such as different records being kept in different locations, while a computer hacker can easily access all files within a hacked database.

Microcomputers present control risks that are not ordinarily associated with an IT environment involving a mainframe computer. Data and software are generally more accessible in a microcomputer environment and unauthorized individuals can more readily access records and modify, copy, or destroy data and software. Other characteristics, such as random processing errors, difficulty in comparing recorded accountability with physical counts, and focusing attention on the accuracy of the programming process are no different in a microcomputer environment than in any other IT environment.

Question 48

Which of the following is not one of the sections of the Dodd-Frank Act (Wall Street Reform and Consumer Protection Act of 2010)?

Orderly Liquidation Authority.

Crowdfunding.

Wall Street Transparency and Accountability.

Financial Stability

Answer 48

Financial Stability, Orderly Liquidation Authority, and Wall Street Transparency are among the 16 titles of the Dodd-Frank Act. Crowdfunding is a title of the JOBS Act of 2012.

Question 49

Gram Co. develops computer programs to meet customers’ special requirements. How should Gram categorize payments to employees who develop these programs?

As direct costs, not value-adding costs.

As value adding costs, not direct costs.

As both direct costs and value-adding costs.
As neither direct costs nor value-adding costs.

Answer 49

both direct and value added
\

Since Gram’s produces computer programs meeting customers’ special requirements, payments to employees developing these programs are both direct costs and value adding costs.

Question 50

A manufacturer is considering using barcode identification for recording information on parts used by the manufacturer. A reason to use barcodes, rather than other means of identification, is to ensure that:

The movement of all parts is recorded.

The movement of parts is easily and quickly recorded.

Vendors use the same part numbers.

Vendors use the same identification methods.

Answer 50

The movement of parts is easily and quickly recorded.

The use of barcode identification for recording information about parts used by a manufacturer will reduce the cost and time involved in tracing and recording the use of parts in the manufacturing process as opposed to manually identifying and recording part usage.

Question 51

n a computerized payroll system environment, an auditor would be least likely to use test data to test controls related to

Missing employee numbers.

Proper approval of overtime by supervisors.

Time tickets with invalid job numbers.

Agreement of hours per clock cards with hours on time tickets.

Answer 51

Approving overtime is a manual operation in which a supervisor signs off on the employee’s time card; the auditor would have to manually examine the timecards. All other solutions are automated procedures in which the auditor could test using test data.