Unit 14 CIA & Study Review

Which of the following statements is(are) correct regarding electronic mail security? Electronic mail can be no more secure than the computer system on which it operates. Confidential electronic mail messages should be stored on the mail server as electronic mail for the same length of time as similar paper-based documents. In larger organizations, there may be several electronic mail administrators and locations with varying levels of security.

1 and 3 only. This answer is correct. Electronic mail can be no more secure than the computer system on which it operates. Also, in larger organizations, there may be several electronic mail administrators and locations with varying levels of security.

Which of the following statements is(are) true regarding the Internet as a commercially viable network? 1. Organizations must use firewalls if they wish to maintain security over internal data. 2 .Companies must apply to the Internet to gain permission to create a home page to engage in electronic commerce. 3. Companies that wish to engage in electronic commerce on the Internet must meet required security standards established by the coalition of Internet providers.

1 only

Which of the following are conditions for a successful mentoring relationship? 1. The relationship should be aimed at improvement of the mentee. 2. The relationship should be based on growth of the mentee. 3. The pairing of mentor and mentee should be voluntary. 4. Mentoring requires a positive work environment.

1, 2, and 3 only

A firm has a strategic business unit (SBU) that has a low market share in a high growth market. To maintain even this low share of the market requires the firm to commit a significant amount of cash. The firm might successfully adopt a build strategy for this unit if the 1. SBU shows a strong potential to grow and obtains a significant share of the market. 2. Firm can finance its growth. 3. Firm expects a short-term increase in cash flow. 4. Firm is willing to forgo short-term earnings.

1, 2, and 4

Which of the following are key technologies of big data? 1,.In-memory analytics 2.Data mining 3.Text mining

1,2, and 3 I, II, and III. This answer is correct. Key technologies of big data include data mining, text mining, data management, in-memory analytics, predictive analytics, and Hadoop.

To ensure privacy in a public-key encryption system, knowledge of which of the following keys would be required to decode the received message? 1. Private 2. Public

1. This answer is correct. In a public-key system, the public key is used to encrypt the message prior to transmission, and the private key is needed to decrypt (decode) the message.

If a company has 150 units that are 80% complete at the end of the year, how many equivalent units are in ending work-in-process?

120 This answer is correct. Equivalent units of production (EUP) equal the number of finished goods that could have been produced using the inputs consumed during the period. One equivalent unit corresponds to one complete physical unit of production. Given 150 work-in-process units that are 80% complete, total EUP equal 120 (150 × 80%).

The earliest completion time for the project is

15 days. This answer is correct. The two paths through the network are A-C-E (5 + 4 + 6 = 15 days) and B-D-E (3 + 2 + 6 = 11 days). The critical or longest path is thus A-C-E. Hence, the earliest completion time is 15 days.

Listed below is selected financial information for the Western Division of the Hinzel Company for last year. Amount Account (thousands) Average working capital US $ 625 General and administrative expenses 75 Net sales 4,000 Average plant and equipment 1,775 Cost of goods sold 3,525 If Hinzel treats the Western Division as an investment center for performance measurement purposes, what is the before-tax return on investment (ROI) for last year?

16.67%

Rework costs should be regarded as a cost of quality in a manufacturing company's quality control program when they are 1.Caused by the customer 2.Caused by internal failure

2 only

Fact Pattern: A business needs a computer application that can be either developed internally or purchased. Suitable software from a vendor costs US $29,000. Minor modifications and testing can be conducted by the systems staff as part of their regular workload. If the software is developed internally, a systems analyst would be assigned full time, and a contractor would assume the analyst's responsibilities. The hourly rate for the regular analyst is US $25. The hourly rate for the contractor is US $22. The contractor would occupy an empty office. The office has 100 square feet, and occupancy cost is US $45 per square foot. Computer time is charged using predetermined rates. The organization has sufficient excess computer capacity for either software development or modification/testing of the purchased software. Other related data follows: Internal Development Purchased Software Systems analyst time in hours: Development 1,000 -0- Modifications and testing -0- 40 Computer charges US $800 US $250 Additional hardware purchases 3,200 -0- Incidental supplies 500 200 Which of the following costs are relevant to deciding whether to develop software internally? 1. Systems analyst salary 2. Contractor's office usage 3. Contractor's hourly rate

3. Only

The EOQ (economic order quantity) model calculates the cost-minimizing quantity of a product to order, based on a constant annual demand, carrying costs per unit per annum, and cost per order. What is the EOQ if the annual demand for a product is 5,000 units, carrying costs are US $1 per item per annum, and the cost of placing an order is US $10?

316

Assume that cost of goods sold for the current year ended December 31 is US $2,000,000. Inventory turnover on total inventory for the entity would be

4.08 times This answer is correct. Inventory turnover is the ratio of cost of goods sold to the average inventory balance. The total average inventory is US $490,000 [($415,000 + $565,0000) ÷ 2]. Hence, total inventory turnover is 4.08 times (US $2,000,000 COGS ÷ $490,000 average total inventory

The entity has a profit margin of

6.67% This answer is correct. The profit margin is the ratio of profit to sales. It equals 6.67% (US $200 profit ÷ $3,000 sales).

A company employs a process cost system using the first-in, first-out (FIFO) method. The product passes through both Department 1 and Department 2 in order to be completed. Units enter Department 2 upon completion in Department 1. Additional direct materials are added in Department 2 when the units have reached the 25% stage of completion with respect to conversion costs. Conversion costs are added proportionally in Department 2. The production activity in Department 2 for the current month was as follows: Beginning work-in-process inventory (40% complete with respect to conversion costs) 15,000 Units transferred in from Department 1 80,000 Units to account for 95,000 Units completed and transferred to finished goods 85,000 Ending work-in-process inventory (20% complete with respect to conversion costs) 10,000 Units accounted for 95,000 How many equivalent units for direct materials were added in Department 2 for the current month?

70,000 units.

Contingency plans for information systems should include appropriate backup agreements. Which of the following arrangements would be considered too vendor-dependent when vital operations require almost immediate availability of computer resources?

A "cold site" arrangement. This answer is correct. Organizations should maintain contingency plans for operations in the case of a disaster. These plans usually include off-site storage of important backup data and an arrangement for the continuation of operations at another location. A cold site has all needed assets in place except the needed computer equipment and is vendor-dependent for timely delivery of equipment.

To avoid invalid data input, a bank added an extra number at the end of each account number and subjected the new number to an algorithm. This technique is known as

A check digit. This answer is correct. Self-checking digits may be used to detect incorrect identification numbers. A check digit is an extra reference number that follows an identification code and bears a mathematical relationship to the other digits. The extra digit is input with the data. The identification code can be subjected to an algorithm and compared to the check digit.

A company services office equipment. Some customers bring their equipment to the company's service shop; other customers prefer to have the company's service personnel come to their offices to repair their equipment. The most appropriate costing method for the company is

A job-order costing system. This answer is correct. Job-order costing systems accumulate costs for tasks or projects that are unique and nonrepetitive. Service organizations are interested in identifying the costs applicable to each customer and/or each service call.

Which of the following is an example of a contingent liability?

A lessee agrees to reimburse a lessor for a shortfall in the residual value of an asset under lease. This answer is correct. The liability resulting from a guarantee is contingent on the lessor's not receiving the full residual value from a third party. A liability is recognized for a guarantee even if the probability of loss is remote.

Which of the following is a major element of the ISO 9000 quality management system standards?

A requirement for organizations to monitor information on customer satisfaction as a measure of performance.

What is an internal rate of return?

A time-adjusted rate of return from an investment.

In an income statement prepared as an internal report, total fixed costs normally are shown separately under Absorption Costing Variable Costing

Absorption Cost: NO Variable Cost: YES

In a company, products pass through some or all of the production departments during manufacturing, depending upon the product being manufactured. Direct material and direct labor costs are traced directly to the products as they flow through each production department. Manufacturing overhead is assigned in each department using separate departmental manufacturing overhead rates. The inventory costing method that the manufacturing company is using in this situation is

Absorption costing

Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs?

Absorption costing

Which statement about the absorption and variable costing methods is true?

Absorption costing encourages manufacturers to overproduce. when production exceeds sales, some fixed costs are recorded in ending inventory, and operating income is higher than under the variable costing method.

Which implemented control would best assist in meeting the control objective that a system have the capability to hold users accountable for functions performed?

Activity logging

In relation to the monetary unit amount of sales, which of the following cost classifications is appropriate for advertising and sales salaries costs? Advertising Sales Salaries

Advertising: Fixed Cost Sales Salaries: Fixed Cost Both advertising and sales salaries should be classified as fixed costs. The advertising was constant for 3 of the 4 months and would be considered fixed in terms of monetary unit sales. Sales salaries also did not vary with monetary unit sales.

During May, Roy Co. produced 10,000 units of Product X. Costs incurred by Roy during May are as follows: Direct materials US $10,000 Direct labor 20,000 Variable manufacturing overhead 5,000 Variable selling and general expenses 3,000 Fixed manufacturing overhead 9,000 Fixed selling and general expenses 4,000 Total US $51,000 Under absorption costing, Product X's unit cost includes

All direct manufacturing costs, variable manufacturing overhead, and fixed manufacturing overhead.

Using absorption costing, which of the following costs are included in cost of goods sold?

All manufacturing costs. Absorption (full) costing includes all manufacturing costs, both fixed and variable. This method is required under GAAP for external reporting purposes.

Which of the following is not a step in activity-based costing (ABC)?

Allocation of activity costs to resource cost pools. ABC consists of (1) activity analysis, (2) assignment of resource cost drivers to resource costs, (3) allocation of resource costs to activity cost pools, (4) assignment of activity cost drivers to activity costs, and (5) allocation of amounts in activity cost pools to final cost objects. Accordingly, resource costs (not activity costs) are allocated using resource cost drivers to activity cost pools (not resource cost pools).

Which of the following statements about operating systems is true?

An operating system is a combination of programs that coordinates the actions of a computer, including its peripheral devices and memory.

All of the following are correct statements regarding businesses deciding to utilize cloud computing for big data projects except

Analysts are not required to have a detailed understanding of the available data and possess some sense of what answer(s) they're looking for.

Which of the following should be implemented and configured to ensure that malicious requests are not submitted to web applications?

Application gateway.

Volume-based costing systems

Are appropriate when most manufacturing costs are homogeneously consumed **Under a volume-based (traditional) costing system, overhead is accumulated in one cost pool and allocated to all end products using one allocation base.

When a user enters a certain entity's system, a series of questions is asked of the user, including a name and mother's birth date. These questions are primarily intended to provide

Authentication of the user. This answer is correct. Requiring specified information allows the computer to identify the user. This access control is intended to limit access to data and programs and the nature of that access.

Which of the following delays the assignment of costs to goods until the goods are finished?

Backflush costing

In conducting an audit of an organization's disaster recovery capability, which of the following would an auditor consider to be the most serious weakness?

Backup media are stored on-site. Storing backup media on-site is a weakness in the plan. They should not be located where they can be affected by the same event that interrupted the system's activities.

Good planning will help an organization restore computer operations after a processing outage. Good recovery planning should ensure that

Backup/restart procedures have been built into job streams and programs.

In an income statement prepared using the variable-costing method, fixed manufacturing overhead would

Be used in the computation of operating income but not in the computation of the contribution margin Under the variable-costing method, the contribution margin equals sales minus variable expenses. Fixed selling and administrative costs and fixed manufacturing overhead are subtracted from the contribution margin to arrive at operating income. Thus, fixed costs are included only in the computation of operating income.

All of the following are correct statements regarding big data except

Big data includes information collected from social media, data from Internet-enabled devices, machine data, video, and voice recordings. The information collected is converted from high-density data into low-density data This answer is correct. Big data includes information collected from social media, data from Internet-enabled devices, machine data, video, and voice recordings. The information collected is converted from low-density data into high-density data. Thus, the statement regarding big data is not correct.

Which of the following best describes a market synergy?

Bundling of products distributed through the same channels.

Which of the following is not included in the total contribution to corporate profits generated by Division A before allocation of central corporate expenses?

Central corporate expenses. This answer is correct. Division A's total contribution to corporate profits is based on all of its revenues and expenses. The central corporate expense allocation is not controllable and also might not be influenced by a responsibility center's manager. Thus, it is not useful for performance evaluation of that manager.

One of the keys to successful redesigning of jobs in order to motivate employees is

Changing the content of jobs so that the jobs fit each worker's need for growth. This answer is correct. One of the major principles of successful job design and redesign is to consider employee needs and skills and match them with jobs. An alternative is to change the jobs to fit those needs and skills. The objective is to conform to strengths and to avoid weaknesses.

To maintain effective segregation of duties within the information technology function, an application programmer should have which of the following responsibilities?

Code approved changes to a payroll program.

An organization has outsourced many services, including waste collection, cafeteria, and custodial services previously performed internally. Management requests an evaluation of contract compliance and the overall performance of the organizations performing the outsourced activities. Which of the following engagement procedures is the least effective in accomplishing the engagement objectives?

Comparison of identified activities for each outsourcer with "best practices" of other outsourcers.

During the audit of a construction contract, it was discovered that the contractor was being paid for each ton of dirt removed. The contract called for payment based on cubic yards removed. Which internal control might have prevented this error?

Comparison of invoices with purchase orders or contracts.

When reviewing the system design of data input controls, which of the following should be given the least consideration?

Configuration. This answer is correct. Data input controls are application controls. The objective of application controls is to ensure the completeness, accuracy, authorization, and validity of input data, processed data, stored data, and output data. Configuration is a consideration when reviewing IT general controls, not application controls. I

The primary objective of security software is to

Control access to information system resources.

Which of the following is a false statement about equivalent units of production (EUP)?

Conversion costs generally are assumed to be incurred primarily at the beginning of the production cycle.

What is the normal effect on the numbers of cost pools and cost assignment bases when an activity-based cost (ABC) system replaces a traditional cost system?

Cost Pools: Increase Cost assignment Bases: Increase

The relevant range refers to the activity levels over which

Cost relationships hold constant

The relevant range refers to the activity levels over which

Cost relationships hold constant The relevant range defines the limits within which per-unit variable costs remain constant and fixed costs are not changeable.

The process of adding resources to shorten selected activity times on the critical path in project scheduling is called

Crashing.

In the computation of manufacturing cost per equivalent unit, the weighted-average method of process costing considers

Current costs plus cost of beginning work-in-process inventory.

What language interface would a database administrator use to establish the structure of database tables?

Data definition language.

An overall description of a database, including the names of data elements, their characteristics, and their relationship to each other, is defined by using a

Data definition language. This answer is correct. The data definition language defines the database structure and content, especially the schema (the description of the entire database) and subschema (logical views of the database). The schema specifies characteristics such as the names of the data elements contained in the database and their relationship to each other.

An entity's receivables collection period is equal to the

Days' sales outstanding. This answer is correct. The average collection period (days' sales in receivables) is the average time required to convert the entity's receivables into cash. It is also called the receivables collection period

A company manufactures and sells a single product. It takes 2 machine hours to produce one unit. Annual sales are expected to be 75,000 units. Annual production capacity is 200,000 machine hours. Expected selling price is US $10 per unit. Cost data for manufacturing and selling the product are as follows: Variable costs (per unit) Direct materials US $3.00 Direct labor 1.00 Variable manufacturing overhead 0.80 Variable selling 2.00 Fixed costs (per year) Fixed manufacturing overhead US $90,000 Fixed selling 60,000 The company estimates that by reducing its selling price to US $9.30 per unit, it can increase sales to 90,000 units annually. Fixed costs per year and unit variable costs will remain unchanged. If the company reduces its selling price to US $9.30 per unit, its profit will

Decrease by US $15,000. This answer is correct. Because total fixed costs are unaffected, the change in profit is the change in the contribution margin. The contribution margin at the current selling price is US $240,000 [75,000 units × ($10 - $3 - $1 - $0.80 - $2)]. The contribution margin at the US $9.30 selling price is US $225,000 [90,000 units × ($9.30 - $3 - $1 - $0.80 - $2)]. Hence, profit will be reduced by US $15,000 ($240,000 - $225,000) if the selling price is lowered to US $9.30.

A distribution channel moves goods from producers to customers. Suppose a channel has 4 producers, each serving the same 4 customers, and no middlemen. If a distributor is introduced, the number of contacts (among producers, customers, and the distributor) in the channel will

Decrease from 16 to 8.

The sale of scrap from a manufacturing process usually is recorded as a(n)

Decrease in manufacturing overhead control

Which of the following data analytics methods should an auditor use to report on actual results?

Descriptive analysis. This answer is correct. Descriptive analysis is the most basic and commonly used data analytics method and concentrates on the reporting of actual results.

Which of the following would not be appropriate to consider in the physical design of a data center?

Design of authorization tables for operating system access.

An information system (IS) project manager is currently in the process of adding a systems analyst to the IS staff. The new systems analyst will be involved with testing the new computerized system. At which stage of the systems development life cycle will the analyst be primarily used?

Development. The systems development life-cycle approach is the oldest methodology applied to the development of medium or large information systems. The cycle is analytically divisible into stages: definition, design, development, implementation, and maintenance. Testing is the most crucial step in the development stage of the life cycle.

Which of the following operating procedures increases an organization's exposure to computer viruses?

Downloading public-domain software from websites.

A controller became aware that a competitor appeared to have access to the company's pricing information. The internal auditor determined that the leak of information was occurring during the electronic transmission of data from branch offices to the head office. Which of the following controls would be most effective in preventing the leak of information?

Encryption.

A corporation acquires a 30% voting interest in another corporation. In this situation, the long-term investment is generally accounted for on the investor corporation's books using which of the following reporting methods?

Equity. This answer is correct. If an investor can exercise significant influence over an investee, the investment should be accounted for by the equity method.

For a supply chain to be successful, what is the most important goal for all parties involved?

Establish bonds of trust This answer is correct. The sharing of information and coordination among the parties regarding sales, inventory, prices, advertising, and forecasts moderates demand uncertainty for everyone. The parties therefore need to trust each other.

A computer company charges indirect manufacturing costs to a project at a fixed percentage of a cost pool. This project is covered by a cost-plus government contract. Which of the following is an appropriate guideline for determining how costs are assigned to the pool?

Establish separate pools for variable and fixed costs

A computer company charges indirect manufacturing costs to a project at a fixed percentage of a cost pool. This project is covered by a cost-plus government contract. Which of the following is an appropriate guideline for determining how costs are assigned to the pool?

Establish separate pools for variable and fixed costs. **different allocation methods are applied to variable and fixed costs, thus requiring them to be separated.

A contract contains several promises made by each of the parties, and performance of every promise has not yet been performed. This contract is

Executory. This answer is correct. A contract is executory if any duty remains to be performed.

Which of the following costs of a manufacturer is most likely to be treated differently under absorption costing and variable costing?

Factory rent.

The efficient markets theory implies that securities prices are

Fair and a reflection of all publicly available information.

A total interruption of processing throughout a distributed information technology system can be minimized through the use of

Fault tolerance. this answer is correct. An advantage of distributed processing is fault tolerance, that is, the ability to continue processing at all sites except a nonfunctioning one.

Which type of contract should be used if there is adequate competition, performance uncertainties can be identified, and reasonable estimates of the cost can be made?

Firm-fixed-price contract. This answer is correct. A firm-fixed-price contract has a price that cannot be changed even if costs increase unexpectedly. It should be used when (1) price competition is adequate, (2) reasonable price comparisons and estimates of costs can be made, and (3) performance uncertainties can be identified.

Production levels are expected to increase within the relevant range. What are the anticipated effects on the following?Fixed Costs Variable Costs per Unit per Unit

Fixed Cost: Decrease Variable Costs: No change

Production levels are expected to increase within the relevant range. What are the anticipated effects on the following? Fixed Costs Variable Costs

Fixed costs: Decrease Variable costs: No change

Fixed manufacturing overhead is budgeted at US $4.5 million. A customer has offered to purchase 100,000 units at US $25 each to be packaged in large cartons, not the normal individual containers. It will pick up the units in its own trucks. Thus, variable selling and administrative expenses will decrease by 60%. When calculating total relevant costs, which of the following is not included in the calculation?

Fixed selling and administrative expenses. The necessary assumptions are that all fixed costs and the unit variable costs of direct materials, direct labor, and variable manufacturing overhead are not affected by the special order. Thus, all fixed costs are not relevant because they will not change if the order is accepted.

Which of the following is not an effective principle for guiding a manager's use of leadership techniques?

Follow written procedures at all times.

Advantages of decentralization include all of the following except

Greater uniformity in decisions. This answer is correct. Organizational design should achieve a balance between centralization and decentralization. The main benefits of centralization are more effective control and reduced costs through resource sharing. The main benefits of decentralization are flexibility and adaptability that permit a rapid response to changes in circumstances. Accordingly, increased uniformity in decision making is an advantage of centralization. It reflects the benefit of more effective control.

Which of the following should be management's primary concern when reviewing a reciprocal disaster recovery agreement between two organizations?

Hardware and software compatibility.

Cost allocation is the process of assigning indirect costs to a cost object. The indirect costs are grouped in cost pools and then allocated by a common allocation base to the cost object. The base that is employed to allocate a homogeneous cost pool should

Have a cause-and-effect relationship with the cost items in the cost pool A cost allocation base is the common denominator for systematically correlating indirect costs and a cost object. The cost driver of the indirect costs is ordinarily the allocation base. In a homogeneous cost pool, all costs should have the same or a similar cause-and-effect relationship with the cost allocation base

During the month just ended, Vane Co. produced and sold 10,000 units of a product. The product's unit cost under variable costing includes which of the following? 1. Variable manufacturing overhead 2. Fixed manufacturing overhead 3. Variable selling costs

I only. This answer is correct. Unit cost under variable (direct) costing includes variable manufacturing costs only (i.e., direct materials, direct labor, and variable manufacturing overhead). Fixed manufacturing overhead and selling expenses are period costs.

The IIA defines data analytics as "The process whereby data is identified, consolidated and quality checked and put into a format where analysis can be done with the goal of

Identifying useful information that better supports corporate decision making."

What is the normal effect on the numbers of cost pools and cost assignment bases when an activity-based cost (ABC) system replaces a traditional cost system? Cost Pools Cost Assignment Bases

Increase Increase

If bonds are sold at a discount and the effective interest method of amortization is used, interest expense will

Increase from one period to another.

Which of the following is false concerning job motivation?

Increased planning and decision making in a job is a positive motivator only if accompanied by a salary increase.

The use of message encryption software

Increases system overhead.

Using absorption costing, fixed manufacturing overhead costs are best described as

Indirect product costs ***Fixed manufacturing overhead costs are indirect costs because they cannot be directly traced to specific units produced.

Which of the following is true of individual decision making, compared to group decision making?

Individual decision making is more conservative.

Which of the following best describes unstructured data?

Information that is not organized in a pre-defined manner (e.g., text-heavy facts, dates, numbers, and images).

Which must be part of any risk model involving inventory valuation?

Inventory shrinkage expense. This answer is correct. The amount of inventory loss through shrinkage directly affects inventory valuation. Inventory shrinkage must be considered in risk models involving inventory valuation.

Which of the following is true about activity-based costing?

It can be used with either process or job costing. Activity-based costing may be used by manufacturing, service, or retailing entities and in job-order or process costing systems.

Which of the following is a correct statement regarding Hadoop?

It is open source software framework that stores large amounts of data and runs applications on clusters of commodity hardware. This answer is correct. Hadoop is an open source software framework that stores large amounts of data and runs applications on clusters of commodity hardware.

A new advertising agency serves a wide range of clients including manufacturers, restaurants, service businesses, department stores, and other retail establishments. The accounting system the advertising agency has most likely adopted for its record keeping in accumulating costs is

Job-order costing

The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. The costs for each loan, which include labor, telephone, and travel, are significantly different across loans. Some loans require the use of outside services such as appraisals, legal services, and consulting services, whereas other loans do not require these services. The most appropriate cost accumulation method for the loan department of the corporation is

Job-order costing

Under a defined contribution pension plan, a(n) <List A> is reported on the statement of financial position only if the amount the organization has contributed to the pension trust is <List B> the amount required.

List A - Asset List B - Greater than

The most difficult aspect of using Internet resources is

Locating the best information source. This answer is correct. The most difficult aspect of using Internet resources is locating the best information given the large number of information sources.

In which of the following situations would a narrower span of control be more appropriate?

Managers must spend a great deal of time coordinating with other managers.

Which organizational structure will likely have unity-of-command problems unless frequent and comprehensive communication occurs among the various functional and project managers?

Matrix

Management information systems represent a significant investment by most businesses. A primary concern of management is that the system

Meet the business needs of the organization.

Which of the following statement(s) is(are) true regarding the relationship between absorption costing net income and variable costing income? 1. When production exceeds sales, variable costing income exceeds absorption costing net income. 2. When sales exceeds production, absorption costing income exceeds variable costing net income.

Neither 1 nor 2.

Fact Pattern: An automobile and personal property insurer has decentralized its information processing to the extent that headquarters has less processing capacity than any of its regional processing centers. These centers are responsible for initiating policies, communicating with policyholders, and adjusting claims. The company uses leased lines from a national telecommunications company. Initially, the company thought there would be little need for interregion communication, but that has not been the case. The company underestimated the number of customers that would move between regions and the number of customers with claims arising from accidents outside their regions. The company has a regional center in an earthquake-prone area and is planning how to continue processing if that center, or any other single center, were unable to perform its processing. The company has considered several alternatives for replacing the hardware required for a regional center's processing. An advantage of using a third-party cold site is that

No additional equipment would be required at the regional centers. This answer is correct. A cold site backup facility is a shell facility where the user can quickly install computer equipment and resume operations in the event of a disaster. The facility has all of the needed assets in place except the needed computer equipment and is vendor-dependent for timely delivery of equipment. Accordingly, an advantage of using a third-party cold site is the elimination of the need for additional equipment.

Weighted-average and first-in, first-out (FIFO) equivalent units would be the same in a period when which of the following occurs?

No beginning inventory exists

Ramseur Company employs a process costing system for its two-department manufacturing operation using the first-in, first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units. The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for Department 2, in units for the current month, is presented below. Physical Flow (output units) Beginning inventory (60% complete with respect to conversion) 20,000 Units transferred in from Department 1 180,000 Total units to account for 200,000 Units completed in Department 2 during the month 170,000 Units found to be defective at inspection 5,000 Ending inventory (80% complete with respect to conversion) 25,000 Total units accounted for 200,000 The units that failed inspection during the current month would be classified by Ramseur as

Normal Scrap The units that failed inspection are classified as normal scrap because they have minimal value and can be sold without further reworking. The defective units are less than the 4% tolerance limit for normal spoilage. Scrap can be sold, disposed of, or reused.

An organization installed antivirus software on all its personal computers. The software was designed to prevent initial infections, stop replication attempts, detect infections after their occurrence, mark affected system components, and remove viruses from infected components. The major risk in relying on antivirus software is that antivirus software may

Not detect certain viruses.

Which of the following would be a reasonable basis for allocating the material handling costs to the units produced in an activity-based costing system?

Number of components per completed unit

Which of the following would be a reasonable basis for allocating the material handling costs to the units produced in an activity-based costing system?

Number of components per completed unit.

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. The manufacturer has identified various cost pools, one of which consists of materials handling costs. This cost pool includes the wages and employee benefits of the workers involved in receiving materials, inspecting materials, storing materials in inventory, and moving materials to the workstations; depreciation and maintenance of materials handling equipment (e.g., forklift trucks); and costs of supplies used as well as other related costs. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products most likely is

Number of parts used

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. The manufacturer has identified various cost pools, one of which consists of materials handling costs. This cost pool includes the wages and employee benefits of the workers involved in receiving materials, inspecting materials, storing materials in inventory, and moving materials to the workstations; depreciation and maintenance of materials handling equipment (e.g., forklift trucks); and costs of supplies used as well as other related costs. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products most likely is

Number of parts used.

A company with three products classifies its costs as belonging to five functions: design, production, marketing, distribution, and customer services. For pricing purposes, all company costs are assigned to the three products. The direct costs of each of the five functions are traced directly to the three products. The indirect costs of each of the five business functions are collected into five separate cost pools and then assigned to the three products using appropriate allocation bases. The allocation base that will most likely be the best for allocating the indirect costs of the distribution function is

Number of shipments. This answer is correct. The number of shipments is an appropriate cost driver. A cause-and-effect relationship may exist between the number of shipments and distribution costs.

Which statement is false regarding the high-low method?

One advantage of the high-low method is that the high and low points generally are representative of normal activity ***one disadvantage of this method is that the high and low points may not be representative of normal activity.

What costs are treated as product costs under variable costing?

Only variable production costs.

As organizations become more computer integrated, management is becoming increasingly concerned with the quality of access controls to the computer system. Which of the following provides the most accountability?

Option I

An auditor has just completed a physical security audit of a data center. Because the center engages in top-secret defense contract work, the auditor has chosen to recommend biometric authentication for workers entering the building. The recommendation might include devices that verify all of the following except

Password patterns

In a large organization, the biggest risk in not having an adequately staffed information center help desk is

Persistent errors in user interaction with systems.

During the preliminary survey for an audit of one of an organization's manufacturing plants, an auditor discovers that the plant experiences production problems with costs far in excess of those budgeted and with finished goods inventory levels that are clearly excessive. Which of the following management control procedures would have best brought the problems to management's attention earlier?

Planning monthly production based on management forecasts, with a report comparing actual production with forecasted production and actual costs with budgeted costs provided to management on a weekly basis.

The punishing of employees is made less effective by

Postponing the start of disciplinary procedures. This answer is correct. The most effective discipline requires immediate corrective action to eliminate the negative effects of the undesirable employee conduct and to establish and reinforce appropriate behavior. Delay merely invites more serious consequences. Moreover, the punishment should be commensurate with the offense, and the employee should clearly perceive the relationship between the punishment and the behavior.

A downward-sloping yield curve depicting the term structure of interest rates implies that

Prevailing short-term interest rates are higher than prevailing long-term interest rates. This answer is correct. The term structure of interest rates is the relationship between long- and short-term interest rates, that is, between yield to maturity and time to maturity. It is graphically depicted by a yield curve with a rate of return on the vertical axis and time to maturity on the horizontal axis. If short-term rates are higher than long-term rates, the curve will be downward sloping. If the reverse is true, the curve will be upward sloping.

Companies characterized by the production of basically homogeneous products will most likely use which of the following methods for the purpose of averaging costs and providing management with unit-cost data?

Process costing

A corporation manufactures two brands of barbed wire fencing for sale to wholesalers and large ranchers. Which of the following would be the best type of costing system for such a company to use?

Process system

The company has an opportunity to promote one of its product lines by making a one-time US $7,000 expenditure. The company can choose only one of the three product lines to promote. The incremental sales revenue that would be realized from this US $7,000 promotion expenditure in each of the product lines is estimated as follows: Increase in Sales Revenue Product Line 1 US $15,000 Product Line 2 20,000 Product Line 3 14,000 In order to maximize profits, the promotion expenditure should be spent on <List A>, resulting in an increase in operating income of <List B>. List A List B

Product Line 3 US $1,120

Which of the following best describes a multilocal or multidomestic strategy used by a global marketing organization?

Products and services are better adapted to local markets.

An investor has been given several financial ratios for an entity but none of the financial reports. Which combination of ratios can be used to derive return on equity?

Profit margin, total assets turnover, and equity multiplier.

When a firm prepares financial reports by using absorption costing,

Profits may decrease with increased sales even if there is no change in selling prices and costs

Which of the following is a product cost for a manufacturing company?

Property taxes on a factory.

Preventing someone with sufficient technical skill from circumventing security procedures and making changes to production programs is best accomplished by

Providing suitable segregation of duties. This answer is correct. When duties are separated, users cannot obtain a detailed knowledge of programs and computer operators cannot gain unsupervised access to production programs.

Which of the following is the best policy for the protection of a company's vital information resources from computer viruses?

Prudent management procedures instituted in conjunction with technological safeguards.

Your objective is to determine that nonrecurring purchases, initiated by various user organizations, have been properly authorized. If all purchases are made through the purchasing department, to which of the following documents should you vouch purchases?

Purchase requisitions. This answer is correct. When the auditor tests for unauthorized nonrecurring purchases, (s)he should vouch purchases to the purchase requisitions. The initiating authorization by the user department is embodied in a properly authorized purchase requisition.

The project management process groups are sets of processes used to achieve objectives. Examples of processes in the planning process group are

Qualitative risk analysis and quantitative risk analysis. This answer is correct. Planning processes define the project scope, objectives, and actions to achieve those objectives. Examples are qualitative risk analysis and quantitative risk analysis. Qualitative risk analysis establishes risk priorities based on probabilities and potential effects.

The best source of evidence to determine if ex-employees continue to have access to a company's computer systems is

Reconciling current payroll lists with database access lists.

Which of the following strategies combines elements of multinational, international, and multilocal strategies?

Regional strategy

Of the following reasons for employees to resist a major change in organizational processes, which is least likely?

Required attendance at training classes

A project coordinator for a large capital project used a brainstorming session of the senior project managers to decide how to get the project back on schedule. A disadvantage of this approach is that

Responsibility for the decision will be unclear.

Computer program libraries should be kept secure by

Restricting physical and logical access.

Which of the following represents the procedure managers use to identify whether the company has information that unauthorized individuals want, how these individuals could obtain the information, the value of the information, and the probability of unauthorized access occurring?

Risk assessment. This answer is correct. The risk assessment forms the core of an organization's contingency planning.

What is the best course of action to take if a program takes longer than usual to load or execute?

Run antivirus software. This answer is correct. The described condition is a symptom of a virus. Many viruses will spread and cause additional damage. Use of an appropriate antivirus program may identify and even eliminate a viral infection.

The required adjusting entry to record US $1,700 of salaries and wages that have been incurred and not paid is

Salaries/wages expense US $1,700 Salaries/wages payable US $1,700

All of the following are part of a control framework that provides reasonable assurance of preventing computer fraud except

Segregation of duties between the programmer and operating systems and compilers

The best evidence that contingency planning is effective is to have

Successful testing of the plan.

Which of the following costs are not relevant in a special-order decision?

Sunk costs.

According to the leadership grid developed by Robert Blake and Anne McCanse, which style produces the best operating results?

Team management. Team management has great concern for production and people, trust, teamwork, and commitment. Blake and his associates assert that this management style is best. It produces the best operating results, health outcomes, and conflict resolutions.

Which of the following is a key disadvantage of a volume-based costing system?

The averaging or spreading of indirect costs over products or service units that use different amounts of resources is inaccurate.

A company has discovered that the cost of processing customer invoices is strictly variable within the relevant range. Which one of the following statements concerning the cost of processing customer invoices is incorrect?

The cost per unit for processing customer invoices will decline as the volume of customer invoices increases. ***Variable cost per unit remains constant in the short run regardless of the level of production.

Which of the following hiring procedures provides the most control over the accuracy of information submitted on an employment application?

The hiring organization calls the last place of employment for each finalist to verify the employment length and position held.

Which of the following is a correct statement regarding volume-based value?

The more data businesses have on the customers, both recent and historical, the greater the insights.

All of the following are correct statements regarding velocity-based value except

The more data businesses have on the customers, both recent and historical, the greater the insights. This answer is correct. The more data businesses have on the customers, both recent and historical, the greater the insights is a correct statement regarding volume-based value.

A manufacturer is considering using bar code identification for recording information on parts used by the manufacturer. A reason to use bar codes rather than other means of identification is to ensure that

The movement of parts is easily and quickly recorded. This answer is correct. Bar code scanning is a form of optical character recognition. Bar codes are a series of bars of different widths that represent critical information about the item. They can be read and the information can be instantly recorded using a scanner. Thus, bar coding records the movement of parts with minimal labor costs.

A perpetual inventory system uses a minimum quantity on hand to initiate purchase ordering procedures for restocking. In reviewing the appropriateness of the minimum quantity level established by the stores department, the internal auditor is least likely to consider

The safety stock level

A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

The total electricity cost per unit of production will increase as production volume increases.

A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

The total electricity cost per unit of production will increase as production volume increases. **Because of the fixed portion, the per-unit cost of a mixed, or semivariable, cost will decrease as production volume increases.

An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true?

The variable cost per unit and the total fixed costs remain constant

An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true?

The variable cost per unit and the total fixed costs remain constant.

When the labor cost accounting component of an integrated end-user computer (EUC) application was first implemented, it did not meet certain business requirements in the department and had to be substantially rewritten. Which of the following risks associated with EUC application development could have led directly to this result?

There may be insufficient review and analysis of user needs when user and analyst functions are no longer separate.

Which of the following products are most likely to be accounted for using process costing?

Thread

Which of the following products are most likely to be accounted for using process costing?

Thread. This answer is correct. Process costing applies to relatively homogeneous products that are mass produced on a continuous basis. Examples are petroleum products, thread, and computer monitors.

Which of the following is an objective of logical security controls for information systems?

To restrict access to specific data and resources.

Which of the following is not one of the reasons organizations use data analytics?

To strengthen data integrity. This answer is correct. Strengthened data integrity and a reduction in data is the result of normalizing data by storing each data element as few times as necessary and is not one of the reasons organizations use data analytics. Data analytics involves qualitative and quantitative methodologies and procedures to retrieve data out of data sources and then to inspect the data in accordance with predetermined requirements.

Among the nonfinancial rewards to an employee, a paid vacation trip can best be categorized as

Token award

In a process-costing system, the cost of abnormal spoilage should be

Treated as a loss in the period incurred.

Using the net present value method for a 5-year project, Project A's net present value is

US $(265,460) This answer is correct. The cash flow at December 31 of Year 5 is at the end of a 5-year period, and the net present value method uses the firm's cost of capital of 18%. The present value factor for 18% for 5 years is .4371, and US $7,400,000 multiplied by .4371 equals US $3,234,540, which is US $265,460 less than the present cash outflow of US $3,500,000.

Fleet, Inc., manufactured 700 units of Product A, a new product, during the year. Product A's variable and fixed manufacturing costs per unit were US $6.00 and US $2.00, respectively. The inventory of Product A on December 31 consisted of 100 units. There was no inventory of Product A on January 1. What is the decrease in the dollar amount per unit of inventory on December 31 if variable costing is used instead of absorption costing?

US $2.00 This answer is correct. Given an inventory increase of 100 units during the year and the fixed manufacturing cost per unit of US $2.00, US $2.00 per unit of overhead is deferred using absorption costing but expensed immediately using variable costing. Thus, variable-costing inventory is US $2.00 per unit lower than under absorption costing.

A company produced and sold 100,000 units of a component. Of the units produced, 1,200 failed the company's tolerance specifications and were reworked at a cost of US $12 per unit. Reworked units were sold as factory seconds. The result was US $5 less in income per unit than for units that initially passed the tolerance specifications. If the company had implemented a quality assurance program to ensure that all units produced conformed to specifications, the increase in the company's contribution margin from this component would have been

US $20,400 This answer is correct. The cost of rework and the income lost when units were sold as factory seconds rather than first-quality units are included in the calculation. The following is the appropriate calculation: (US $12 + $5) × 1,200 = US $20,400.

During its first year of operations, a company produced 275,000 units and sold 250,000 units. The following costs were incurred during the year: Variable costs per unit: Direct materials US $15.00 Direct labor 10.00 Manufacturing overhead 12.50 Selling and administrative 2.50 Total fixed costs: Manufacturing overhead US $2,200,000 Selling and administrative US $1,375,000 The difference between operating profit calculated on the absorption-costing basis and on the variable-costing basis is that absorption-costing operating profit is

US $200,000 greater. This answer is correct. Absorption-costing operating profit exceeds variable-costing operating income because production exceeds sales, resulting in a deferral of fixed manufacturing overhead in the inventory calculated using the absorption method. The difference of US $200,000 is equal to the fixed manufacturing overhead per unit (US $2,200,000 ÷ 275,000 = US $8.00) times the difference between production and sales (275,000 - 250,000 = 25,000, which is the inventory change in

An entity sold a depreciable asset at the end of the fifth year of its estimated 10-year useful life. The original cost of the asset was US $100,000, and it was being depreciated on the straight-line basis. If the asset was sold for US $80,000, the gain on the sale will be

US $30,000 This answer is correct. The gain on the sale is the difference between the sale proceeds and the carrying amount of the asset (its remaining undepreciated cost). Depreciation must be taken up to the time of sale. Assuming that residual value is US $0, annual depreciation is US $10,000 ($100,000 ÷ 10 years). Thus, the gain is US $30,000 {$80,000 sale proceeds - [$100,000 historical cost - ($10,000 × 5 years)]}.

Passwords for personal computer software programs are designed to prevent

Unauthorized use of the software.

Which of the following are not included in the monthly calculation of equivalent units of production (EUP) for direct materials?

Units classified as scrap after inspection. This answer is correct. Equivalent units of production express the number of units that could have been fully completed given the same number of inputs. However, defective scrap is never considered to be inventory.

The company's scrap value in relation to the standard monetary value of output produced appears to be

Unrelated to the standard monetary value of output

A major disadvantage of the life cycle approach to system development is that it is not well-suited for projects that are

Unstructured This answer is correct. The life cycle approach is best employed when systems are large and highly structured, users understand the tasks to be performed by the information system, and the developers have directly applicable experience in designing similar systems.

Which of the following will not reduce risk associated with illegal access to an organization's network through the Internet?

Using token ring technology for local area networks. This answer is correct. A local area network (LAN) connects devices within an organization and allows them to communicate with each other. Token ring technology merely facilitates communication across the LAN.

Data access security related to applications may be enforced through all of the following except

Utility software functions.

Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

Variable cost per unit Variable cost per unit remains constant in the short run regardless of the level of production. This is in contrast with variable costs in total, which vary directly and proportionally with changes in volume.

Using the variable costing method, which of the following costs are assigned to inventory?

Variable selling and administrative costs: No Variable Factory Overhead Costs: Yes

A national retailer required more detailed data to help stock its stores with the right products and to increase its turnover. Such data amounted to several gigabytes per day from each store. A new high-speed company-wide network was needed to transmit and analyze the data. The company wanted the features, functionality, and control of a sophisticated voice and data network without the cost of the components or the staff to maintain it. Which of the following options would be most suitable?

Virtual private network.

Which of the following would be of greatest concern to an auditor reviewing a policy regarding the sale of a company's used personal computers to outside parties?

Whether deleted files on the hard disk drive have been completely erased.

Which of the following is a malicious program, the purpose of which is to reproduce itself throughout the network and produce a denial of service attack by excessively utilizing system resources?

Worm.