Best Quality IIA IIA-CIA-Part3 Exam Questions Free4Dump Realistic Practice Exams [2021]
Critical Information To Business Knowledge for Internal Auditing Pass the First Time
NEW QUESTION 241
Fulford Company applies the target pricing and costing approach. The following information about costs and revenues of Fulford's product are available for the year just ended:
Fulford plans to increase unit sales to 80,000 by reducing the product's unit price to US $320.
If Fulford desires a unit target operating income of 12CYo, by what amount must it reduce the full cost per unit?
- A. US $38.40
- B. US $70.40
- C. US $80.00
- D. US $32.00
Answer: B
Explanation:
Unit target operating income is US $38.40 $320 unit target price 12%). Hence, the unit target full cost is US $281.60 $320 - $38.40). The current full cost per unit is US $352.00 [($13,200,000 CGS + $7,920,000 other value chain operating costs) - 60,000 units sold], so the necessary reduction in the full cost per unit is US $70.40 $352.00 - $281.60).
NEW QUESTION 242
A remote location contains a data center with hardware available to support critical production systems as required in the recovery plan IT personnel periodically test and update systems at the data center. This is an example of which of the following recovery solutions?
- A. Warm recovery plan
- B. Cold recovery plan
- C. Critical recovery plan
- D. Tested recovery plan
Answer: A
NEW QUESTION 243
An organization has a compensation system for its managers based on a management-
objectives MBO) approach. The essential premise of MBO is that:
- A. Managers should establish objectives for their employees.
- B. Compensation should be based on qualitative factors.
- C. Employees should be concerned with routine matters, and managers should attend to exceptions.
- D. Employees should participate in setting objectives.
Answer: D
Explanation:
MBO involves mutual setting of objectives by the superior and the subordinate as a basis for performance evaluation. Based on the Theory if philosophy that employees want to work hard if they know what is expected, MBO requires 1) senior management participation and commitment to the program, 2) integration of the objectives for all subunits into a compatible system directed toward accomplishment of organizational objectives, 3) provision for regular reporting of performance, and 4) free and honest communication between superior and subordinates. Subordinates must make careful assessments of their abilities and their interests, and managers must "coach" subordinates rather than dictate their proper objectives.
Both sides must maintain flexibility to accommodate unforeseen changes, and the review and analysis of results before setting the next round of objectives is a vital part of the process.
NEW QUESTION 244
An entity has daily cash receipts of US $300,000. A bank has offered to provide a lockbox service that will reduce the collection time by 3 days. The bank requires a monthly fee of US $2,000 for providing this service. If money market rates are expected to average 6% during the year, the additional annual income loss) of using the lockbox service is:
- A. US $54,000
- B. US $30,000
- C. US $(24,000)
- D. US $12,000
Answer: B
Explanation:
Because collections will be accelerated by 3 days at a rate of US $300,000 per days, the entity will have an additional US $900,000 to invest. At a rate of 6%, the interest earned will be US $54,000 per year. However, the bank will charge US $24,000 $2,000 per month x 12 months) for its services. Thus, the entity will increase its income by US $30,000 54,000 $24,000).
NEW QUESTION 245
Business process reengineering is most likely to:
- A. Implement modern information systems technology to eliminate some controls.
- B. Apply a continuous improvement model.
- C. Be applied within individual departments.
- D. Improve existing procedures.
Answer: A
Explanation:
Reengineering and TQM techniques eliminate many traditional controls. They exploit modern technology to improve productivity and decrease the number of clerical workers. Thus, controls should be automated and self-correcting and require minimal human intervention. Moreover, auditors must be prepared to encounter and use) new technologies.
The emphasis therefore shifts to monitoring so management can determine when an
operation may be out of control and corrective action is needed.
NEW QUESTION 246
A retail company determines its selling price by marking up variable costs 60%. In addition, the company uses frequent selling price markdowns to stimulate sales. If the markdowns average 10%, what is the company's contribution margin ratio?
- A. 41.7%
- B. 37.5%
- C. 30.6%
- D. 27.5%
Answer: C
Explanation:
The contribution margin equals revenues minus variable costs. The CMR equals the UCM divided by the selling price. For example, if variable costs average US $10 per unit, the average selling price is US $16 $1.60 x $10). However, the 10% markdown implies that the actual average selling price is US $14.40 .90 x $16). The CMR is therefore 30.6% [ US $14.40 - $10.00) - $14.40]. A company that sells its single product for US $40 per unit uses cost-volume-profit analysis in its planning. The company's after-tax profit for the past year was US $1,188,000 applying an effective tax rate of 40%. The projected costs for manufacturing and selling its single product in the coming year are listed.
NEW QUESTION 247
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 is true?
- A. The variable cost per unit increases and the total fixed costs remain constant.
- B. The variable cost per unit is constant, and the total fixed costs decrease.
- C. The variable cost per unit and the total fixed costs remain constant.
- D. The variable cost per unit is constant, and the total fixed costs increase.
Answer: C
Explanation:
Total variable cost changes when changes in the activity occur within the relevant range. The cost per unit for a variable cost is constant for all activity levels within the relevant range. Thus, if the activity volume increases within the relevant range, total variable costs will increase. A fixed cost does not change when volume changes occur in the activity level within the relevant range. If the activity volume increases within the relevant range, total fixed costs will remain unchanged.
NEW QUESTION 248
Before sending or receiving EDI messages, a company should:
- A. Evaluate the effectiveness of its use of EDI transmissions.
- B. Demand that all its suppliers implement EDI capabilities.
- C. Execute a trading partner agreement with each of its customers and suppliers.
- D. Reduce inventory levels in anticipation of receiving shipments.
Answer: C
Explanation:
Before sending or receiving EDI messages, a company should execute a trading partner agreement with its customers and suppliers. All parries should understand their responsibilities, the messages each will initiate, how they will interpret messages, the means of authenticating and verifying the completeness and accuracy of messages, the moment when the contract between the parries is effective, the [required level of security, etc.
NEW QUESTION 249
Which is the least effective form of risk management?
- A. Systems-based preventive control.
- B. Systems-based detective control.
- C. People-based preventive control.
- D. People-based detective control.
Answer: D
NEW QUESTION 250
The emergence of electronic data interchange EDI) as standard operating practice increases the risk of:
- A. Systematic programming errors.
- B. Unsuccessful system use.
- C. Unauthorized third-party access to systems
- D. Inadequate knowledge bases.
Answer: C
Explanation:
EDI is the communication of electronic documents directly from a computer in one entity to a computer in another entity. EDI for business documents between unrelated parties has the potential to increase the risk of unauthorized third-party access to systems because more outsiders will have access to internal systems.
NEW QUESTION 251
Company F applies a target pricing and costing approach. The following information about costs and revenues of Company F's product are available for the year just ended:
Company F plans to increase unit sales to 80,000 by reducing the product's unit price to US $320. If Company F desires a unit target operating income of 12%, by what amount must it reduce the full cost per unit?
- A. US $38.40
- B. US $70.40
- C. US $80.00
- D. US $32.00
Answer: B
Explanation:
Unit target operating income is US $38.40 12% > $320 unit target price). Hence, the unit target full cost is US $281.60 $320 - $38.40). The current full cost per unit is US $352.00 [($13,200,000 CGS + $7,920,000 other value chain operating costs) - 60,000 units sold], so the necessary reduction in the full cost per unit is US $70.40 $352.00 - $281.60).
NEW QUESTION 252
Which of the following is not true about the advantages of adopting ISO 9000 standards?
- A. ISO registration makes customers more comfortable with the supplier's products and services.
- B. ISO 9000 allows entities to understand who internal customers and users are without sharing private information.
- C. ISO registration may help entities discover internal process and quality improvements.
- D. Adoption of ISO 9000 standards may allow an entity to sell products in foreign markets.
Answer: B
Explanation:
Market pressure is usually the primary reason that entities adopt ISO 9000 standards. However, many entities that register make internal process and quality improvement as a result. ISO 9000 forces entities to share information, which leads to a better understanding of who internal customers and users are.
NEW QUESTION 253
Maintenance cost at a hospital was observed to increase as activity level increased. The following data was gathered:
Activity Level Maintenance Cost
Month Patient Days Incurred January 5,600 $7,900
February 7,100 $8,500
March 5,000 $7,400
April 6,500 $8,200
May 7,300 $9,100
June 8,000 $9,800
If the cost of maintenance is expressed in an equation, what is the independent variable for this data?
- A. Fixed cost.
- B. Patient days.
- C. Variable cost.
- D. Total maintenance cost.
Answer: B
NEW QUESTION 254
The expected time of the critical path is:
- A. 12.0 days
- B. 11.5 days
- C. 13.0 days
- D. 11.0 days
Answer: C
Explanation:
The critical path is the longest path. The longest path in the diagram is A-D-E, which requires 13 days (5.5 + 7.5) based on expected times.
NEW QUESTION 255
Fulford Company applies the target pricing and costing approach. The following information about costs and revenues of Fulford's product are available for the year just ended:
Fulford plans to increase unit sales to 80,000 by reducing the product's unit price to US $320.
If Fulford desires a unit target operating income of 12CYo, by what amount must it reduce the full cost per unit?
- A. US $38.40
- B. US $70.40
- C. US $80.00
- D. US $32.00
Answer: B
Explanation:
Unit target operating income is US $38.40 $320 unit target price 12°X0). Hence, the unit target full cost is US $281.60 $320 - $38.40). The current full cost per unit is US $352.00 [($13,200,000 CGS + $7,920,000 other value chain operating costs) - 60,000 units sold], so the necessary reduction in the full cost per unit is US $70.40 $352.00 - $281.60).
NEW QUESTION 256
Which of the following is the most effective user account management control in preventing the unauthorized use of a computer system?
- A. Employees are required to renew their accounts semiannually.
- B. Management enforces an aggressive password policy that requires passwords to be 10 characters long, to be nonreusable, and to be changed weekly.
- C. The passwords and usernames of failed log-in attempts are logged and documented in order to cite attempted infiltration of the system.
- D. An account manager is responsible for authorizing and issuing new accounts.
Answer: A
Explanation:
Management's network security policy should include measures to ensure that old and] unused accounts are removed promptly. If employees' accounts expire semiannually, reasonable assurance is provided that accounts in use by unauthorized employees do not exist.
NEW QUESTION 257
A desired result of the sharing of information by all functions and organizations in the supply chain is:
- A. Fewer rush orders.
- B. Stockouts.
- C. Maximization of inventories held by suppliers, manufacturers, and retailers.
- D. Incompatibility of the information systems of the parties.
Answer: A
Explanation:
Sharing information about sales, inventory, pricing, advertising campaigns, and sales forecasts by all functions and organizations in the supply chain moderates demand uncertainty for all parties. The desired results are (1) minimization of inventories held by suppliers, manufacturers, and retailers; (2) avoidance of stockouts; (3) fewer rush orders; and (4) production as needed by retailers.
NEW QUESTION 258
Refer to the exhibit.
The figure below shows the network diagram for the activities of a large project. What is the shortest number of days in which the project can be completed?
- A. 21 days.
- B. 27 days.
- C. 51 days.
- D. 22 days.
Answer: B
Explanation:
Explanation/Reference:
NEW QUESTION 259
Which of the following would provide the most relevant assurance that the application under development will provide maximum value to the organization?
- A. Adequate software documentation.
- B. End-user involvement.
- C. Formalized non-regression testing phase.
- D. Use of a formal systems development lifecycle.
Answer: B
NEW QUESTION 260
A reader of a statement of cash flows wishes to analyze the major classes of gross cash receipts and gross cash payments from operating activities. Which methods of reporting cash flows from operating activities will supply that information?
- A. Both the direct and indirect methods.
- B. Only the indirect method. D Neither method
- C. Only the direct method.
Answer: C
Explanation:
The statement of cash flows may report cash flows from operating activities in either an indirect or a direct format. The direct format reports the major classes of operating cash receipts and cash payments as gross amounts. The indirect presentation adjusts profit or loss to the same amount of net cash from operating activities that would be determined in accordance with the direct method. To arrive at this amount, the indirect method adjusts profit or loss for the effects of noncash transactions, deferrals or accruals of past or future operating cash flows, and income or expense related to financing or investing activities.
NEW QUESTION 261
What is the overall audit objective when auditing an e-commerce activity?
- A. To ensure that all e-commerce processes have efficient internal controls.
- B. To ensure that all e-commerce processes have effective internal controls.
- C. To ensure that all e-commerce processes are adequate to fulfill their intended objectives.
- D. To ensure that all e-commerce processes meet the functionality requirements of the end users.
Answer: B
Explanation:
According to PA 2100-6, when auditing e-commerce activities, the overall audit objective should be to ensure that all e-commerce processes have effective internal controls.
NEW QUESTION 262
The four components of time series data are secular trend, cyclical variation, seasonality, and random variation. The seasonality in the data can be removed by:
- A. Taking the weighted average over four time periods.
- B. Multiplying the data by a seasonality factor.
- C. Subtracting a seasonality factor from the data.
- D. Ignoring it.
Answer: A
Explanation:
Time series analysis relies on past experience. Changes in the value of a variable may have several possible components including secular trends, cyclical variation, seasonality, and random variation. Seasonal variations are common in many businesses. A variety of methods exist for including seasonal variations in a forecasting model, but most methods use a seasonal index. Alternatively, seasonal variations can be removed from data by using a weighted average of several time periods instead of data from individual periods.
NEW QUESTION 263
Which audit approach should be employed to test the accuracy of information housed in a database on an un-networked computer?
- A. Evaluate compliance with the organization's change management process.
- B. Select a sample of records from the database and ensure it matches supporting documentation.
- C. Use a test program to simulate the normal data entering process.
- D. Submit batches of test transactions through the current system and verify with expected results.
Answer: B
NEW QUESTION 264
The following information applies to an entity. Purchases Sales:
A cash payment equal to 40% of purchases is made at the time of purchase, and 30% is paid in each of the next 2 months. Purchases for the previous November and December were US $150,000 per month. Payroll is 10% of sales in the month it occurs, and operation expenses are 20% of the following month's sales July sales were US $220,000). Interest payments were US , " x,000 paid quarterly in January and April.
What were the entity's cash disbursements for the month of April?
- A. US $200,000
- B. US $140,000
- C. US $152,000
- D. US $254,000
Answer: D
Explanation:
The cash disbursements for the month of April include 40% of April purchases, 30% of March purchases, 30% of February purchases, April payroll 10% of April sales), operating expenses 20 I of May sales), and an interest payment of US $20.000.
NEW QUESTION 265
In its first year of operations, an entity had US $50,000 of fixed operating costs. It sold 10,000 units at a US $10 unit price and incurred variable costs of US $4 per unit. If all pnc es and costs will be the same in the second year and sales are projected to rise to 25,000 units, what will the degree of operating leverage the extent to which fixed costs are used in the entity's operations) be in the second yc _u?
- A. 1 50
- B. 2.0
- C. 1 25
- D. 6.0
Answer: A
Explanation:
The DOL may be calculated as the contribution margin sales - variable cost) divided by the excess of the contribution margin ever It <:ed costs. The contribution margin is US $150.000 [25.000 units x $10 unit price - $4 unit variable cost)]. Hence, the DOL in the second year is 1.50 [US $150,000 CM / $150,000 - $50,000 FC)].
NEW QUESTION 266
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