Fani Warraich MANAGEMENT SCIENCES   -   Cost & Management Accounting

A company has the following costs: Direct Materials: Rs. 100,000 Direct Labor: Rs. 150,000 Overheads: Rs. 50,000 (25% of which is fixed) Opening Inventory: Rs. 20,000 Closing Inventory: Rs. 30,000 What is the COGS?

COGS = Opening Inventory + (Direct Materials + Direct Labor + Overheads) - Closing Inventory = 20,000 + (100,000 + 150,000 + 50,000) - 30,000 = 20,000 + 300,000 - 30,000 = 290,000 - 30,000 = 240,000
Fani Warraich MANAGEMENT SCIENCES   -   Cost & Management Accounting

What is the primary purpose of calculating the Cost of Goods Sold (COGS)?

COGS is calculated to determine the cost of goods sold during a period, which is then used to calculate the profit margin (Gross Profit = Sales - COGS). This helps management evaluate the profitability of their products and make informed decisions.
Fani Warraich MANAGEMENT SCIENCES   -   Financial Accounting

A company pays rent for a full year upfront on January 1st for $12,000. How should this transaction be recorded in the journals?

Since the rent benefits the entire year, it's treated as a prepaid expense (b). Option (c) wouldn't capture the full cost upfront. The answer depends on the company's policy (d) for handling prepaid expenses. Some companies might choose to record monthly rent expense based on an accrual basis.
Fani Warraich MANAGEMENT SCIENCES   -   Financial Accounting

A company has a trial balance that balances perfectly. Does this guarantee the absence of errors in the journals and general ledger?

A balanced trial balance (a) only indicates equal total debits and credits. Transposition errors (e.g., $125 instead of $251) or recording an expense as an asset with the same amount wouldn't affect the balance (b).
Fani Warraich MANAGEMENT SCIENCES   -   Financial Accounting

Company A uses a single general journal for all transactions, while Company B utilizes a sales journal and a purchases journal. Which company is likely to be more efficient in recording transactions?

Special journals like sales and purchases journals (b) group similar transactions, reducing repetitive entries and saving time. This is particularly beneficial for companies with high transaction volumes.
Fani Warraich MANAGEMENT SCIENCES   -   Financial Accounting

A company mistakenly recorded a purchase of inventory for $10,000 as an expense. How can a strong internal control system help identify this error most effectively?

egregation of duties (b) ensures the purchasing department raises a purchase order, which the accounting department uses to record the inventory purchase. This prevents the accidental recording of the purchase as an expense. While bank reconciliations (a) and general ledger reviews (d) are important controls, they might not catch this specific error.
Fani Warraich MANAGEMENT SCIENCES   -   Financial Accounting

Which of the following statements is NOT true about the relationship between the chronological journal and the general journal?

While the chronological journal captures transactions in real-time, it's not a mandatory step. Transactions can be directly recorded in the general journal with proper explanations.
Fani Warraich MANAGEMENT SCIENCES   -   Audit & Assurance

What is the primary purpose of issuing an auditor's report?

The primary purpose of an auditor's report is to provide stakeholders with the auditor's opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
Fani Warraich MANAGEMENT SCIENCES   -   Audit & Assurance

Which of the following types of audit evidence is generally considered the most reliable?

Documentary evidence obtained from independent third parties is often considered the most reliable form of audit evidence due to its objectivity and reliability.
Fani Warraich MANAGEMENT SCIENCES   -   Audit & Assurance

Which of the following best describes the purpose of analytical procedures in an audit engagement?

Analytical procedures involve comparing financial information with expectations derived from other sources to identify areas that may require further investigation.

MANAGEMENT SCIENCES