We know from cost accounting that there are three components that make up the standard costs for inventory. Explain how an auditor could test each of these components for a company that manufactures pillows.
What will be an ideal response?
Materials - The auditor could obtain a list of materials needed to manufacturer a certain type of pillow and compare that list with the standard cost card. The prices can then be traced to the vendors' invoices to verify that the proper cost is being applied for materials.
Labor - Historical data regarding the amount of labor necessary to make a pillow can be obtained. It can then be compared to the amount of authorized wages.
Overhead - The allocation of overhead should be reviewed by the auditor for reasonableness. The auditor should also verify that the amounts included in overhead are appropriate.
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U.S. GAAP and IFRS requires firms to use specific identification for inventory valuation and cost-of-goods-sold whenever feasible
Indicate whether the statement is true or false
Briefly explain what "slotting" is. What ethical issues might arise with regard to slotting?
What will be an ideal response?
?Ace Inc. is evaluating two mutually exclusive projects-Project A and Project B. The initial cash outflow is $50,000 for each project. Project A results in cash inflows of $15,625 at the end of each of the next five years. Project B results in one cash inflow of $99,500 at the end of the fifth year. The required rate of return of Ace Inc. is 10 percent. Ace Inc. should invest in:
A. ?Project B because it has no cash inflows in the first four years of its life. B. ?Project B because it has a higher net present value (NPV). C. ?Project A because it will yield cash every year for five years. D. ?Project A because it has a positive net present value (NPV). E. ?Project A because it will generate cash in the initial years of its life.
Smart Solutions Inc. is evaluating a capital project for expansion. The project costs $10,000, and it is expected to generate $5,000 per year for three years. If the required rate of return is 10 percent, what is the terminal value of the project?
A. $15,000 B. $16,550 C. $11,550 D. $14,050 E. $12,500