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Problem 1 Denise Ondeyko, CPA, is drafting an audit program to test controls over the Purdue Corporation's cost records: Required: 1 . Explain the importance
Problem
Denise Ondeyko, CPA, is drafting an audit program to test controls over the Purdue Corporation's cost records:
Required:
Explain the importance of determining the disposition of overapplied and underapplied overhead. In your explanation, describe how overhead should be treated.
List and explain some items that should be included in overhead. What should not be included?
Problem
Alicin Nagle, an incharge auditor, is reviewing the inventory controls for the City of Carlton's vehicle maintenance facility. Nagle has learned the following:
a Vehicle maintenance records indicate that, even though the total number of trucks is decreasing, the number of inoperative trucks waiting for spare parts is increasing.
b Stockroom employees have been unable to find some parts, even though the perpetual inventory system shows the parts on hand.
c The investment in spare parts inventory has remained at about the same level in each of the last three years.
d Many of the spare parts can be used for passenger cars.
e A clerk in the parts warehouse office maintains the perpetual inventory records.
Required: Design tests of controls for each item listed.
Problem
Following are errors, frauds, or other circumstances that an auditor might encounter as a result of applying yearend substantive tests of details to inventory as of December
a Perpetual inventory records for selected products are not accurate.
b A material amount of inventory is held in several public warehouses throughout the Midwest.
c Unit prices for selected products on the final priced inventory appear low; the
client uses the firstin firstout cost flow assumption.
d The final priced inventory reflects quantities from the perpetual inventory
records.
e Goods were received on December but not recorded until January
f The client has begun to lag behind competitors in market share; the client is in the computer industry.
Required: For each of the above items, indicate a a specific substantive test or tests that might address the error, fraud, or circumstance and b the financial statement assertion addressed by each test.
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Problem 1 Importance of Overapplied and Underapplied Overhead 1 Explanation Overapplied and underapplied overhead occur when the actual overhead costs incurred differ from the overhead costs applied t...Get Instant Access to Expert-Tailored Solutions
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