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1. A. What is the control environment? What are the elements that comprise the control environment?
B. What is meant by risk assessment process?
C. What is an information system?
D. What are control activities?
E. Give the different types of control activities.
F. Why is it necessary to monitor controls?
G. What are the inherent limitations of internal controls?
H. Enumerate, in chronological order, the steps followed in the study and evaluation of internal controls. Explain each step briefly.
I. What is a transaction walkthrough?
J. What are the different ways by which an understanding of controls is documented?
K. When is the control risk assessment High? Less than high?
L. How does a high control risk assessment affect the planned audit approach?
M. Give examples of responses to the assessed risk of material misstatement.
N. What is the relationship of a less than high control risk assessment to the nature, extent, and timing of substantive tests?
O. May substantive tests be eliminated?
P. How are audit matters related to internal control communicated to management and to those charged with governance?
2. The beginning balance of Office Supplies was $2,300 Dunng the year, Betterton purchased office supplies for $3.000 and at December 31 the ofice supplies on hand totaled $1,000 (Assume that Betterton debits an asset account when supplies are purchased.) Date Accounts and Explanation Debit Credit (c) Dec 31
3. Change all of the numbers in the data area of your worksheet so that it looks like this:
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A B C |
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 |
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(b) What is the net operating income (loss) in Year 2 under absorption costing?
1. In one question as per guideline of Chegg we can answer only 4 sub-question and here list is very long hence answering first 4 questions. Kindly raise different question for each 4 sub-questions.
A. What is the control environment? What are the elements that comprise the control environment?
Control enviornment mean Iternal control within the organisation. It means the set of action taken by stake holders of organisation for protection and operation of organisation in form of defining policies, procedures.
Following are main element of control enviornment :
a. Communication and enforcement of integrity and values
b. Top management commitment
c. Competency of people involved in the process
d. Active participation of those who are responsible to act
e. Assignment of authority and responsibility
f. What is meant by risk assessment process?
Risk assessment is assessment or evaluation of business process and flows considering risk involved. Usually number of risks involved in each and every process and it is very essential for each and every organisation to take sufficient action to prevent those risk from ocurring.
C. What is an information system?
Information system is the defined system within organisation which is used for storing, collecting, processing and retriving information, data. Within organisatio there can be various information system such as accouting system, Human Resource record system.
D. What are control activities?
Control activities are those action taken by stake holders of organisation which ensures smooth running of business flows without involving material risk.
Segregation of duties, Approval metrics etc are the examples of control activities.
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3. The net operating income (loss) for Year 2 under absorption costing :-
| Particulars | Amount($) | Amount($) |
| A.Revenue (Units Sold* Selling Price):(2400*$334) | 801600 | |
| Less: Cost of Sales | ||
| Opening Inventory (Units * Full cost) (200*$267) [see note1,2&3] | 53400 | |
| Direct Material (Produced Units * Direct Material cost per unit):(2300*$135) | 310500 | |
| Direct Labor (Produced Units * Direct Lobor cost per unit) : (2300*$54) | 124200 | |
| Variable Manufacturing Overhead (Produced Units * Variable Manufacturing overhead per unit) : (2300*$26) | 59800 | |
| Fixed Manufacturing Overhead (Produced Units * Fixed Manufacturing overhead per unit) : (2300*$52) [ see note 3] | 119600 | |
| less: Closing Inventory (Units * Full cost) (100*$267) [see note1,2&3] | (26700) | |
| B.Cost of Sales | 640800 | |
| C. Gorss Profit (A-B) | 160800 | |
| D.Add/(less): Over/(Under) Absorption [see note 4] | 0 | |
| E.Less: Selling & Adminstrative Expenses | ||
| Variable (Units sold * variable per unit ) (2400*$4) | 9600 | |
| Fixed per year | 58000 | 67600 |
| F. Net Operation Income as per Absorption Costing (C-D-E) | 93200 |
Notes:
1. Calculation of Opening & Closing Inventory for the 2nd Year:
| Particulars | Year 1(units) | Year 2 (units) |
| Opening Inventory |
0 |
200 |
| Add:Produced Units | 2600 | 2300 |
| Less: Sold Units | 2400 | 2400 |
| Closing Inventory | 200 | 100 |
2. Full Cost per unit:
| Particulars | Amount($) per unit |
| Direct Material | 135 |
| Direct labor | 54 |
| Variable Manufacturing Overhead | 26 |
| Fixed Manufacturing Overhead (see note 3) | 52 |
| Full Cost | 267 |
3. Fixed Manufacturing Overhead per unit =Budgeted Fixed overhead/Budgeted Units
=$119600/2300
=$52
(Budgeted data is not given therefore, actual figures are used)
4. Over /(under) Absorption=Absorbed fixed overhead- Actual Fixed overhead
=119600-119600
=0
