c. Use Figure 9.5 to determine the achieved upper deviation rate and the above table to determine the assessed level of control risk under the following circumstances. Assume that the sample size was 75 items. (Round your answers to 1 decimal place.) Achieved Upper Deviation Rate Assessed Level of Circumstance Control Risk No deviations were included in the sample. % Low One deviation is included in the sample. Low Eight deviations were included in the sample. Slightly below the maximum
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
You have been asked to test the effectiveness of Ingo Corporation’s control of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. Jian Zhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 6 percent (although she expects the rate to be only approximately 1.00 percent) and a 5 percent risk of assessing control risk too low. Use the following to determine the planned assessed level of control risk and the assessed level of control risk.
a. Use Figure 9.5 to determine the achieved upper deviation rate and the above table to determine the assessed level of control risk under the following circumstances. Assume that the
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