[Anonymous]

NINJA Question –

The explanation contradicts the correct answer

In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?

A.

Test the computation of standard overhead rates.

Incorrect B.

Tour the manufacturing plant or production facility.

C.

Compare inventory balances to anticipated sales volume.

D.

Review inventory experience and trends.

Although computing standard overhead rates and assigning overhead to manufactured products is very important in a manufacturing facility, testing this computation will not help the auditor determine whether slow-moving, defective, and obsolete items included in inventory are properly identified. It may assist the auditor with testing the cost of goods sold account.

Recommended procedures for determining if slow-moving, excess, defective, and obsolete items included in inventories are properly identified would be the following:

Examine and analyze inventory turnover

Review industry experience and trends

Analytically review the relationship of inventory balances to anticipated sales volume

Tour the plant

Inquire of production and sales personnel concerning possible excess or obsolete inventory items

[Anonymous]

I don't see anything wrong with the answer (A) or explanation. Overhead computation is irrelevant to inventory valuation or existence.

[Anonymous]

I read this question wrong. Thank you. I feel like a complete idiot lol.

[Author]

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