An auditor decides to perform an inventory turnover analysis for both raw materials inventory and finished goods inventory. The analysis would be potentially useful in:
1. Identifying products for which management has not been attuned to changes in market demand.
2. Identifying potential problems in purchasing activities.
3. Identifying obsolete inventory.

• A.I and II only
• B.I, II, and III
• C.II and III only
• D.III only

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What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?

• A.Horizontal analysis.
• B.Ratio analysis.
• C.Regression analysis.
• D.Trend analysis.

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Which of the following factors would the auditor in charge be least likely to consider when assigning tasks to audit team members for an engagement?

• A.Whether outside resources will be needed, and their availability.
• B.The amount of experience the auditors have conducting audits in the specific area of the organization.
• C.The availability of the auditors in relation to the availability of key client staff.
• D.Whether the budgeted hours are sufficient to complete the audit within the current scope.

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Which of the following is the most important concept to be included in a consulting engagement agreement?

• A.Disclose the fact that follow-up reviews may be conducted to ensure that recommendations are implemented adequately.
• B.Define the duties and responsibilities needed from management to perform the engagement.
• C.Clarify that matters discovered during the engagement may also be reported to senior management and the audit committee.
• D.Disclose the fact that auditors who perform the work may not be subject matter experts in the topic of the review.

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A company used simple regression analysis to analyze maintenance costs against machine hours (MH) for a 26-week period when the plant was in full operation. The regression yielded the following estimated cost function:
Maintenance Cost = $60 + $0.25/MH
The regression analysis also generated a coefficient of determination (R2), or goodness of fit, of 0.85. Which of the following statements regarding this regression analysis is appropriate?

• A.The coefficient of determination of R2 = 0.85 indicates that the goodness of fit is poor because the value is close to the maximum value of one.
• B.The $60 component represents the best estimate of fixed maintenance costs for the company in a shutdown situation.
• C.The $0.25 component is the slope coefficient of the cost estimate and represents the average variable maintenance cost per machine hour.
• D.This regression can be used to determine the maintenance cost for any period at any activity level by substituting the machine hours in the equation.

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