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IIA IIA-CIA-Part3 Exam Prep
Certified Internal Auditor - Part 3, Business Analysis and Information Technology (Page 40 )

Updated On: 16-Aug-2026
Page 40 of 312
PDF with 1555 Questions

If a manufacturer has established a limit on the number of defects that are tolerable in the final assembly of its product, which of the following quality control procedures should be employed?

I). Inspect completed goods for compliance with established tolerances.
II). Review sales returns for defects not detected during the final inspection process.
III). Compare materials and machinery specifications with original product designs.
IV). Establish a quality circle that includes management and subordinates to discuss labor efficiency.

  1. I, III, and I.
  2. II and III only.
  3. I, II, and III.
  4. III and IV only.

Answer(s): C

Explanation:

Quality control procedures may be categorized according to the nature of the costs incurred. An organization incurs appraisal costs to ensure product quality. These costs include the costs of inspection, testing, and statistical quality control programs. An organization also should investigate the causes of sales returns, which represent an external failure cost. Furthermore, the organization should incur certain prevention costs, e.g., by reviewing equipment design and materials requirements.



Which statement best describes total quality management TOM)?

  1. TOM emphasizes reducing the cast of inspection.
  2. TOM emphasizes better statistical quality control techniques.
  3. TOM emphasizes doing each job right the first time.
  4. TOM emphasizes encouraging crass-functional teamwork.

Answer(s): C

Explanation:

TOM establishes quality as an organizational objective and views it as a major component of the organization's service to its customers. It emphasizes employee training and commitment, product/service design and production, and customer service. Ordinarily, the quality of a product or service is as important to customers as cast and timeliness. Superior product quality is not attained merely through more inspection, better statistical quality control, and cross- functional teamwork. Manufactures must make fundamental changes in the way they produce products and do each jab right the first time.



Quality cost indices are often used to measure and analyze the cost of maintaining or improving the level of quality. Such indices are computed by dividing the total cost of quality over a given period by some measure of activity during that period for example, sales dollars). The following cost data are available for a company for the month of March. The company's quality cost index is calculated using total cost of quality divided by sales dollars.
Sales US $400,000
Direct materials cost 100,000
Direct labor cost 80,000
Testing and inspection cost 6,400
Scrap and rework cost 16,800
Quality planning cost 2,800
Cost of customer complaints and returns 4,000
The quality cost index for March is:

  1. 7.5%
  2. 6.5%
  3. 22.0%
  4. 5.9%

Answer(s): A

Explanation:

The total cost of quality equals the sum of prevention costs quality planning), appraisal casts testing and inspection), internal failure casts scrap and rework), and external failure casts customer complaints and returns), or U $30,000 $2,800 + $6,400 + $16,800 + $4,000). The quality cost index equals the total casts of quality divided by sales. Thus, the quality cast index for March is 7.5% U $80,000 ­ U $400,000).



The internal audit activity has undertaken an audit of the shipping and receiving department of a department store chain. The best engagement tool for this purpose most likely is:

  1. Competitive benchmarking.
  2. Strategic benchmarking.
  3. Internal benchmarking.
  4. Process benchmarking.

Answer(s): D

Explanation:

Process function) benchmarking studies operations of organizations with similar processes regardless of industry. Thus, the benchmark need not be a competitor Or even a similar entity}. This method may introduce new ideas that provide a significant competitive advantage. The advantage of process benchmarking is that it permits a wider choice of benchmarked organizations. Thus, the best practices for a shipping and receiving function may not be found in the same industry}.



Using the balanced scorecard approach, an organization evaluates managerial performance based on

  1. A single ultimate measure of operating results, such as residual income.
  2. Multiple financial and nonfinancial measures.
  3. Multiple nonfinancial measures only.
  4. Multiple financial measures only.

Answer(s): B

Explanation:

The trend in managerial performance evaluation is the balanced scorecard approach. Multiple measures of performance permit a determination as to whether a manager is achieving certain objectives at the expense of others that may be equally or more important. These measures may be financial or nonfinancial and usually include items in four categories:
1) financial;
2) customer;
3) internal business processes; and
4) learning, growth, and innovation.



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