When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that
A) Quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand.
B) Physical inventories are in substantial agreement with book inventories.
C) The system is in accordance with generally accepted accounting principles and is functioning as planned.
D) Costs have been properly assigned to work in process, finished goods, and cost of goods sold.

Question

Quizplus · Accepted Answer

The primary objective of an auditor's test of an entity's cost accounting system is to determine whether costs have been properly assigned to work in process, finished goods, and cost of goods sold. The auditor must verify that the cost accounting system is accurately recording manufacturing costs and allocating them appropriately to the appropriate products or services. Options A and B relate to inventory valuation, while option C relates to accounting principles and system design, but these factors are not the primary focus of the auditor's testing of the cost accounting system.

When an Auditor Tests an Entity's Cost Accounting System, the Auditor's