An audit manager has just returned from an executive training program and has suggested that the audit department develop a mathematical model to help identify factors that may be causing changes in the cost of production. According to the manager, the model should recognize that the company currently has three separate production (cost) centers.
Which of the following approaches would best provide the analysis suggested by the audit manager?

• A.Develop a classical variables sampling estimate of cost of production per department, with the sample stratified by the dollar value of each product produced.
• B.Develop a 3-year ratio analysis of the cost of production compared to the cost of raw inventory across the three departments.
• C.Develop a multiple regression analysis of production costs, including such variables as raw material inventory costs, number of employees in the department, and overtime pay.
• D.Develop a linear regression analysis relating the cost of production to the cost of goods sold.

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Which of the following COSO internal control framework components encompasses establishing structures, reporting lines, authorities, and responsibilities?

• A.Control environment.
• B.Control activities.
• C.Information and communication.
• D.Monitoring.

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Which of the following is an example of a physical control?

• A.Keeping an offsite backup of the organization's critical data.
• B.Performing business continuity and disaster recovery planning.
• C.Establishing a physical security policy and promoting it throughout the organization.
• D.Providing fire detection and suppression equipment.

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If the organization uses the traditional full cost system, the cost per unit for this product for the coming year will be:

• A.US $5.39
• B.US $5.44
• C.US $6.11
• D.US $6.95

Correct Answer: C

Given that manufacturing overhead is applied on the basis of machine hours, the overhead rate is US $60 per hour $1,800.000 - 30,000) or US $.96 per unit [80 machine hours per batch x $60) - 5,000 units per batch]. Accordingly, the unit full cost is US $6.11 $5.15 unit price cost + $.96). Believing that its traditional cost system may be providing misleading information. an organization is considering an activity-based costing ABC) approach. It now employs a full cost system and has been applying its manufacturing overhead on the basis of machine hours. The organization plans on using 50.000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted.

Cost, sales, and production data for one of the organization' s products for the coming year are as follows:

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Which of me following represents an inventory costing technique that can be manipulated by management to boost net income by selling units purchased at a low cost?

• A.Specific identification method
• B.Last-in first-out method (LIFO)
• C.First-in first-out method (FIFO)
• D.Average-cost method

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