Among analytical procedures commonly used to audit the revenue cycle, what is the audit significance of the sales to capacity ratio?
A)Assessing the reasonableness of total revenues
B)Comparing manufacturing to other asset-based companies
C)Evaluating the reasonableness of uncollectible accounts expense
D)Evaluating the reasonableness of prior period's uncollectible accounts expense

Question

Quizplus · Accepted Answer

The sales to capacity ratio assesses the reasonableness of total revenues by comparing the company's sales to its production capacity. If the sales to capacity ratio is significantly higher or lower than expected, it may indicate that revenue has been either overstated or understated, which could warrant further investigation by the auditor.

Among Analytical Procedures Commonly Used to Audit the Revenue Cycle