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IIA CIA Exam
Certified Internal Auditor Exam (Page 26 )

Updated On: 12-Jan-2026
Page 26 of 342
PDF with 1702 Questions

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. The manufacturer has identified various cost pools. One of which consists of materials handling costs. This cost pool includes the wages and employee benefits of the workers involved in receiving materials, ins ting materials, storing materials in inventory, and moving materials to the workstations; depreciation and maintenance of materials handling equipment e , forklift trucks): and costs of supplies used as well as other related costs. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products most likely is

  1. Direct labor hours.
  2. Number of units produced.
  3. Number of vendors involved.
  4. Number of parts used.

Answer(s): D

Explanation:

Cost drivers should be related to the costs accumulated in cost pools. The number of parts used has a direct cause-and-effect relationship with materials handling costs. The more parts used. the more handling is involved.



A company experienced a machinery breakdown on one of its production lines. As a consequence of the breakdown, manufacturing fell behind schedule, and a decision was made to schedule overtime to return manufacturing to schedule. Which one of the following methods is the proper way to account for the overtime paid to the direct laborers?

  1. The overtime hours times the sum of the straight-time wages and overtime premium entirely to manufacturing overhead.
  2. The overtime hours times the sum of the straight-time wages and overtime premium direct labor.
  3. The overtime hours times the overtime premium would be charged to repair and maintenance expense, and the overtime hours times the straight-time wages would be
    treated as direct labor.
  4. The overtime hours times the overtime premium would be charged to manufacturing overhead and the overtime hours times the straight-time wages would be treated as direct labor.

Answer(s): D

Explanation:

Direct labor costs are wages paid to labor that can feasibly be specifically identified with the production of finished goods. Factory overhead consists of all costs, other than direct materials and direct labor, that are associated with the manufacturing process. Thus, straight-time wages would be treated as direct labor; however, because the overtime premium cost is a cost that should be borne by all production, the overtime hours times the overtime premium should be charged to manufacturing overhead.



Many companies recognize three major categories of costs of manufacturing a product.These are direct materials, direct labor, and overhead. Which of the following is an overhead cost in the production of an automobile?

  1. The cost of small tools used in mounting tires on each automobile.
  2. The cost of the tires on each automobile.
  3. The cost of the laborers who place tires on each automobile.
  4. The delivery costs for the tires on each automobile.

Answer(s): A

Explanation:

The cost of small tools used in mounting tires cannot be identified solely with the manufacture of a specific automobile. This cost should be treated as factory overhead because it is identifiable with the production process.



Using absorption costing, fixed manufacturing overhead costs are best described as

  1. Direct period costs.
  2. Indirect period costs.
  3. Direct product costs.
  4. Indirect product costs.

Answer(s): D

Explanation:

Using absorption costing, fixed manufacturing overhead is included in inventoriable product) costs. Fixed manufacturing overhead costs are indirect costs because they cannot be directly traced to specific units produced.



Without prejudice to your answer to any other question, assume that cost of goods sold for the current year ended December 31 is 2, 000, 000. Inventory turnover on total inventory for the entity would be

  1. 2.04 times.
  2. 3.54 times.
  3. 4.08 times.
  4. 4.82 times.

Answer(s): C

Explanation:

Inventory turnover is the ratio of cost of goods sold to the average inventory balance. The total average inventory is 490, 000 [(90, 000 BFG + 105, 000 BRM + 220, 000 BWIP + 260, 000 EFG + 130.000 ERM + 175.000 EWIP) - 2]. Hence, total inventory turnover is 4.08 times 2, 000, 000 assumed CGS 1 490, 000 average total inventory).



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