2017 AICPA Newly Released Questions—Business BUSINESS 2017 AICPA Newly Released MCQs Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 2017 AICPA Business Newly Released MCQs—Medium (Moderate) Rating CPA-05000 Which of the following statements is true regarding internal control objectives of information systems? a Primary responsibility of viable internal control rests with the internal audit division b A secure system may have inherent risks due to management's analysis of trade-offs identified by cost-benefit studies c Control objectives primarily emphasize output distribution issues d An entity's corporate culture is irrelevant to the objectives Unit & Module to be Assigned To: B-1, M-1 Representative Task: BI-A1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: 10 Correct Answer Choice: B ANSWER: Choice "b" is correct One of the limitations of even a well-designed internal control system is management's ability to override those controls One reason management may override them is that the benefit of doing so exceeds the cost, which represents an inherent risk of even the strongest systems Choice "a" is incorrect Senior management and the board of directors have primary responsibility for establishing, implementing, and enforcing internal controls Internal Audit is a partner in the process, but it does not have primary responsibility Choice "c" is incorrect Objectives within the internal control integrated framework include operations, reporting, and compliance objectives Output distribution issues are just one aspect of what may be covered through the establishment of these objectives Choice "d" is incorrect The corporate culture (or "tone at the top") is extremely critical to the process of establishing and enforcing objectives Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05001 Employees of an entity feel peer pressure to the right thing; management appropriately deals with signs that problems exist and resolves the issues; and dealings with customers, suppliers, employees, and other parties are based on honesty and fairness According to the COSO, the above scenario is indicative of which of the following? a Strategic goals b Operational excellence c Reporting reliability d Tone at the top Unit & Module to be Assigned To: B-1, M-1 Representative Task: BI-A2.3 Skill Level (Must be R&U or Application Only): Application Page Reference: Correct Answer Choice: D ANSWER: Choice "d" is correct The "tone at the top" represents the culture of an organization in terms of the standards related to internal controls and conduct that senior management and the board of directors set for an entity When employees are focused on doing the right thing, when management quickly addresses and resolves issues, and when fairness and honesty prevail in dealings with internal and external people, a positive tone for the organization is established Choice "a" is incorrect The items described in the question relate to the tone/culture of an organization rather than specific short- or long-term goals Choice "b" is incorrect Operational excellence relates to a desire to perform at the highest level, which is more of an objective and a goal than the "tone at the top." Choice "c" is incorrect Reporting reliability is addressed as part of establishing reporting objectives rather than setting the tone at the top Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05002 According to the COSO, which of the following identifies the group directly responsible for the implementation and development of the enterprise risk management framework? a Management b The board of directors c External auditors d Internal auditors Unit & Module to be Assigned To: B-1, M-2 Representative Task: BI-B1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: 13 Correct Answer Choice: A ANSWER: Choice "a" is correct It is incumbent upon management to determine how the inevitable risks that an entity faces must be balanced with the desire to grow stakeholder value Management is responsible for developing and implementing the enterprise risk management framework and process Choice "b" is incorrect The board of directors is responsible for the oversight of management, which includes assessing the work it is doing from an enterprise risk management standpoint and holding management accountable for its work Choice "c" is incorrect External auditors are parties from outside of an entity which will come in to evaluate the risk management process, along with internal controls and many other operational and reporting functions External auditors are not tasked with developing and implementing an entity's risk management framework Choice "d" is incorrect Internal auditors are employees of an entity who serve to operate similarly to external auditors from an evaluation standpoint; they are not tasked with developing and implementing a risk management framework Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05014 Which of the following organizations was established by the Sarbanes-Oxley Act of 2002 to control the auditing profession? a Information Systems Audit and Control Foundation (ISACF) b IT Governance Institute (ITGI) c Public Company Accounting Oversight Board (PCAOB) d Committee of Sponsoring Organizations (COSO) Unit & Module to be Assigned To: B-1, M-3 Representative Task: BI-C1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: 27 Correct Answer Choice: C ANSWER: Choice "c" is correct Congress, through the Sarbanes-Oxley Act of 2002, created the PCAOB to oversee public company and broker/dealer audits Choice "a" is incorrect ISACF, which traces its origins to the 1970s, was developed for the purpose of building knowledge related to information technology governance and control Choice "b" is incorrect ITGI was formed in 1998 to serve as a think tank for global IT governance Choice "d" is incorrect The COSO is a private sector initiative that was established in the mid-1980s for the purpose of assessing fraudulent financial reporting Both the Internal Control-Integrated Framework and the Enterprise Risk Management-Integrated Framework are COSO initiatives Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05021 A government is most likely to reduce taxes on investments when: a The real exchange rate is expected to be unusually high b Inflation is expected to be unusually low c The gross domestic product is expected to be unusually high d Capital spending is expected to be unusually low Unit & Module to be Assigned To: B-5, M-1 Representative Task: BII-A1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: 10 Correct Answer Choice: D ANSWER: Choice "d" is correct Reducing taxes is a fiscal policy decision designed to increase disposable income and facilitate future spending and economic growth Lower-than-expected capital spending can be addressed through lower taxes, which puts more money into the hands of businesses and consumers Choice "a" is incorrect Given their unpredictability and volatility, exchange rate fluctuations are unlikely to affect government decisions to raise or lower taxes Choice "b" is incorrect Lower-than-expected inflation means that the costs of goods and services will be more affordable for purchasers, implying that the government will not need to reduce taxes to generate economic activity Choice "c" is incorrect If GDP is growing faster than expected, the government does not need to reduce taxes to spur higher spending Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05024 Which of the following statements is correct regarding an economy at the peak of the business cycle? a The economy will be in a static equilibrium b The economy will be at the natural rate of unemployment c Incomes will be stable d The rate of inflation will decrease Unit & Module to be Assigned To: B-5, M-1 Representative Task: BII-A1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: Correct Answer Choice: B ANSWER: Choice "b" is correct At the natural rate of unemployment, there is frictional, structural, and seasonal unemployment; cyclical unemployment is at percent, which implies that the economy is operating at its highest potential level Choice "a" is incorrect The peak is a temporary state (to be followed by a contractionary phase), which implies that the economy will not remain static Choice "c" is incorrect Both costs and prices reach their highest levels at a peak Although incomes are potentially rising during a peak, they will either level off or decline as the cycle moves into the contractionary phase Choice "d" is incorrect Price levels are likely to still be rising during a peak Once the peak shifts to a contractionary phase, price levels may decline Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05026 In which of the following situations would it be advantageous for a country to export a manufactured product? a The country's government prefers to be self-sufficient b The country has an absolute advantage in the production of a complementary product c The country has a comparative advantage in the production of the item d The country has a higher opportunity cost for production of the item Unit & Module to be Assigned To: B-5, M-6 Representative Task: BII-B1.1 Skill Level (Must be R&U or Application Only): Application Page Reference: 65 Correct Answer Choice: C ANSWER: Choice "c" is correct A comparative advantage stems from specializing in the trade and production of specific products If a country is able to produce a product more efficiently and cost effectively than its peers, selling these products overseas offers a potential for higher profits Choice "a" is incorrect A self-sufficient government will not focus on exports and, in fact, may make it more difficult and costly for a company to export its goods Choice "b" is incorrect Absolute advantage refers to a company's ability to produce more output (relative to a set amount of resources) than its peers The extent to which a company exports a good that is complementary will depend on the export strategy for the other good or goods with which it is sold Choice "d" is incorrect The higher the opportunity cost, the more likely it is that the company will shift its resources to other production options that will produce a greater return Higher opportunity costs equate to lower competitive advantage Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05028 The consensus of economic forecasts indicates that consumer prices are likely to increase because of increases in aggregate demand Which of the following outcomes is most likely to occur as prices increase? a Quantity of output increases if there is capacity to produce b Unemployment increases c Profits fall if all costs are fixed d Profits rise even if costs increase Unit & Module to be Assigned To: B-5, M-1 Representative Task: BII-A1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: Correct Answer Choice: A ANSWER: Choice "a" is correct With increases in aggregate demand, both output and prices will increase The demand curve shifts to the right, which results in a higher quantity of goods supplied Choice "b" is incorrect Higher economic activity (output) will tend to cause unemployment to decrease, as companies need more workers to meet the higher demand Choice "c" is incorrect If costs are fixed and prices are rising, profits will rise rather than fall Choice "d" is incorrect Profits may continue to rise, but only if sales exceed costs If costs are increasing, sales have to increase by more than costs for profits to rise Page of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business CPA-05030 A U.S.-based company decides to invest capital in an emerging market operation that has a lower expected return rate compared to the expected return for an alternative domestic operation Which of the following statements correctly supports this decision? a Management expects the U.S dollar to decline in value relative to the foreign location's currency b Management expects inflation to increase in the emerging market compared to the U.S inflation rate c Management expects inflation to decrease in the U.S compared to the foreign location's inflation rate d Management expects the U.S dollar to strengthen in value relative to the foreign location's currency Unit & Module to be Assigned To: B-1, M-5 Representative Task: BII-C2.1 Skill Level (Must be R&U or Application Only): Application Page Reference: 49 Correct Answer Choice: A ANSWER: Choice "a" is correct A declining local currency (here, the U.S dollar) implies that the dollar becomes less expensive relative to foreign currency Even though the expected percentage return is higher for the domestic operation, an investor will be able to take advantage of the strength of the foreign currency on the international investment relative to the dollar Choice "b" is incorrect Investors will want to purchase investments denominated in foreign currency when domestic inflation is higher (not lower) relative to the emerging market Choice "c" is incorrect Investors will want to purchase investments denominated in foreign currency when domestic inflation is higher (not lower) relative to the emerging market Choice "d" is incorrect An investor would be more inclined to purchase domestically if the expectation was that the U.S dollar would strengthen relative to a foreign currency Page 10 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 23 CPA-05163 A country reduces its rate of monetary growth Which of the following is the expected result for the country's economy? a Higher net exports b Higher investment c Lower GDP growth d Lower interest rates Unit & Module to be Assigned To: B-5, M-2 Representative Task: BII-A1.2 Skill Level (Must be R&U or Application Only): Application Page Reference: 28 Correct Answer Choice: C ANSWER: Choice "c" is correct Monetary growth relates to an increase in the money supply If the money supply declines, this will lead to higher interest rates, a reduction in firm investment and household consumption, a decrease in aggregate demand, and a reduction in GDP Choice "a" is incorrect Higher net exports are indicative of an increase in GDP (economic growth) The effect on GDP will be negative if monetary growth slows or declines Choice "b" is incorrect A reduction in monetary growth will lead to lower rather than higher investment Choice "d" is incorrect A reduction in monetary growth will lead to higher rather than lower interest rates Page 24 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 24 CPA-05164 Which of the following changes would most effectively halt a period of inflation? a Decreasing interest rates by a large amount b Decreasing savings by a small amount c Increasing interest rates by a large amount d Increasing savings by a small amount Unit & Module to be Assigned To: B-5, M-1 Representative Task: BII-A1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: 10 Correct Answer Choice: C ANSWER: Choice "c" is correct Increasing interest rates reduces aggregate demand, which in turn will reduce output (GDP) and lower prices Choice "a" is incorrect Decreasing interest rates increases aggregate demand, which in turn will increase output (GDP) and raise prices Choices "b" and "d" are incorrect Changing savings by small amounts is unlikely to have a major effect on price levels Page 25 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 25 CPA-05166 Which of the following is the most likely result of imposing tariffs to increase domestic employment? a A long-run reallocation of workers from export industries to protected domestic industries b A short-run increase in domestic employment in import industries from export industries c A decrease in the tariff rates of foreign nations d A decrease in consumer prices in the domestic market Unit & Module to be Assigned To: B-5, M-6 Representative Task: BII-B1.2 Skill Level (Must be R&U or Application Only): Application Page Reference: 67 Correct Answer Choice: A ANSWER: Choice "a" is correct A tariff is a tax imposed on imported goods and services One of the desired effects of implementing a tariff is that if imported goods and services become more expensive, companies and individuals will be more likely to produce domestically—thereby increasing domestic employment Taxes will have a negative effect on international business, thereby increasing domestic business Workers will be needed to meet the demand domestically Choice "b" is incorrect Tariffs on imported goods will likely result in a short-run decrease in domestic employment in import industries Choice "c" is incorrect An increase in tariffs implemented domestically will likely lead to an increase in tariff rates of foreign nations Choice "d" is incorrect If anything, higher tariffs and increases in domestic employment will lead to higher consumer prices as costs increase and sales must increase in order to maintain profits Page 26 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 26 CPA-05167 A company considers investing $20 million in a foreign company whose local currency is under pressure The company suspects that the exchange rate may fluctuate soon The exchange rate at the time of the investment is 2.57 to $1.00 After the investment, the exchange rate changes to 3.15 to $1.00 What is the change in the value of the company's investment in U.S dollars? a 18.4 percent increase b 18.4 percent decrease c 22.6 percent increase d 22.6 percent decrease Unit & Module to be Assigned To: B-1, M-5 Representative Task: BII-C1.1 Skill Level (Must be R&U or Application Only): Application Page Reference: 49 Correct Answer Choice: B ANSWER: Choice "b" is correct An initial investment of $20 million is worth 51,400,000 in foreign currency based on an exchange rate of 2.57 to $1.00 After the exchange rate change (3.15 to $1.00), 51,400,000 is worth $16,317,460 A decline from $20,000,000 to $16,317,460 represents a decline of $3,682,540, or 18.4 percent Choice "a" is incorrect The decline in the foreign currency relative to the U.S dollar hurt the company, as the investment denominated in the foreign currency lost value Choice "c" is incorrect The foreign currency lost value relative to the U.S dollar, which causes the company's investment to decline Choice "d" is incorrect This choice incorrectly compares the decline of $3,682,540 to the new value in U.S dollars of $16,317,460 Page 27 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 27 CPA-05168 A corporation has $50,000 in equity and a debt-to-total-assets ratio of 0.5 The firm wants to reduce this ratio to 0.2 by selling new common stock and using the proceeds to repay principal on outstanding longterm debt What amount of additional equity financing must the corporation obtain to accomplish this objective? a $20,000 b $30,000 c $80,000 d $100,000 Unit & Module to be Assigned To: B-4, M-3 Representative Task: BV-D2.3 Skill Level (Must be R&U or Application Only): Application Page Reference: 33 Correct Answer Choice: B ANSWER: Choice "b" is correct Because Total assets = Debt + Equity, the debt-to-total assets ratio can be restated as follows: Debt / (Debt + Equity) If the current ratio is equal to 0.5, then debt must be equal to $50,000 $50,000 in Debt / ($50,000 in debt + $50,000 in equity) = 0.5 By issuing an additional $30,000 in equity and using the proceeds to pay down debt, equity increases to $80,000 and debt decreases to $20,000 The ratio with the new numbers is calculated as follows: Debt − to − total − assets = $20,000 ($20,000+$80,000) = 0.2 Choice "a" is incorrect Issuing $20,000 in equity and using the proceeds to pay down debt would result in a debt-to-total-assets ratio of 0.3 Choice "c" is incorrect There is only $50,000 in debt to start, so issuing $80,000 in new equity and using the proceeds would remove debt entirely such that the debt-to-total assets ratio would be Choice "d" is incorrect There is only $50,000 in debt to start, so issuing $100,000 in new equity and using the proceeds would remove debt entirely such that the debt-to-total assets ratio would be Page 28 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 28 CPA-05170 What does beta measure in the capital asset pricing model? a The volatility of a stock relative to its competitors b The volatility of a stock relative to the market c The additional return required over the risk-free rate d Unsystematic risk Unit & Module to be Assigned To: B-2, M-1 Representative Task: BIII-A1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: 10 Correct Answer Choice: B ANSWER: Choice "b" is correct Beta (also referred to as beta coefficient) represents the risk (volatility) of an individual stock relative to the volatility of the overall market A beta of means the stock and the overall market have equal volatility, and a beta greater (less) than means the stock is more (less) volatile than the market Choice "a" is incorrect Beta is not used to measure the volatility of a stock relative to its competitors Choice "c" is incorrect The risk premium (with beta as a component) is used to measure the additional return required over the risk-free rate; beta by itself does not equate to this return Choice "d" is incorrect Beta is used in the cost-of-equity calculation, which provides the expected return taking into account systematic (rather than unsystematic) risk Page 29 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 29 CPA-05180 A company issued common stock and preferred stock Projected growth rate of the common stock is percent The current quarterly dividend on preferred stock is $1.60 The current market price of the preferred stock is $80 and the current market price of the common stock is $95 What is the expected rate of return on the preferred stock? a percent b percent c percent d 13 percent Unit & Module to be Assigned To: B-2, M-1 Representative Task: BIII-A1.2 Skill Level (Must be R&U or Application Only): Application Page Reference: Correct Answer Choice: C ANSWER: Choice "c" is correct The preferred stock pays dividends of $1.60 per quarter, or $6.40 per year $6.40 annual dividends / $80 current market price = percent Choice "a" is incorrect This choice uses the $1.60 quarterly dividend payment as an annual amount Choice "b" is incorrect This choice incorrectly uses the $95 common stock price as the denominator in the calculation Choice "d" is incorrect This choice assumes a much higher dividend or much lower stock price than appropriate Page 30 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 30 CPA-05195 A customer notified a company that the customer's account did not reflect the most recent monthly payment The company investigated the issue and determined that a clerk had mistakenly applied the customer's payments to a different customer's account Which of the following controls would help to prevent such an error? a Checksum b Field check c Completeness test d Closed-loop verification Unit & Module to be Assigned To: B-6, M-3 Representative Task: BIV-B1.2 Skill Level (Must be R&U or Application Only): Application Page Reference: 25 Correct Answer Choice: D ANSWER: Choice "d" is correct Closed-loop verification is a validation method that takes data entered into a system and uses it to retrieve and display other information to verify the accuracy of input data In this scenario, the customer and the company can both receive system confirmation that the payment was made and applied to the correct place Choice "a" is incorrect This automatically calculates totals for data transmitted This would not prevent the error of a clerk entering a payment into the wrong account Choice "b" is incorrect A field check is an edit check that examines characters in a field to make sure that they reflect the correct field type This would not prevent the error of a clerk entering a payment into the wrong account Choice "c" is incorrect This is a data entry control whereby a system determines whether all of the data necessary for a specific transaction have been entered This would not prevent the error of a clerk entering a payment into the wrong account Page 31 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 31 CPA-05270 Which of the following is a financial measure of success in a balanced scorecard? a Market share b Sales growth c Cycle time d Staff morale Unit & Module to be Assigned To: B-3, M-4 Representative Task: BV-A1.1 Skill Level (Must be R&U or Application Only): R&U Page Reference: 43 Correct Answer Choice: B ANSWER: Choice "b" is correct Sales are reported on company financial statements and are often used as a measure of financial performance Choice "a" is incorrect Market share represents a goal or tactic (to grow market share) rather than a financial measure Choice "c" is incorrect Cycle time is a throughput measure captured as an internal business process on a balanced scorecard Choice "d" is incorrect Staff morale is definitely not a financial measure, but it may be captured on a balanced scorecard as a human resources/learning and innovation measure Page 32 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 32 CPA-05284 In order to increase the profit margin for a certain product, a company is planning to purchase a custommade machine for $5,000,000 It is anticipated that the introduction of the new machine will reduce the product's variable costs of labor and maintenance by $5.50 per unit and $0.95 per unit, respectively The product manager estimates that 500,000 units of the product will be manufactured and sold each year with a product life cycle of two years, at which time the machine will be discarded with no salvage value What is the company's total cost savings over the product's life cycle? a $725,000 b $1,450,000 c $3,225,000 d $6,450,000 Unit & Module to be Assigned To: B-3, M-1 Representative Task: BV-B1.1 Skill Level (Must be R&U or Application Only): Application Page Reference: Correct Answer Choice: B ANSWER: Choice "b" is correct Variable cost savings total $6,450,000 (500,000 units x ($5.50 + $0.95) x years = $6,450,000) The machine will cost $5,000,000 to purchase, so the net savings = $6,450,000 – $5,000,000 = $1,450,000 Choice "a" is incorrect This choice takes the net savings and equates it to an annual amount rather than the full cycle Choice "c" is incorrect This choice only calculates the annual variable cost savings Choice "d" is incorrect This choice only takes into account the total variable cost savings, without considering the cost of the machine Page 33 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Simulations—Business BUSINESS 2017 AICPA Newly Released Sims Page of Registered to David Lewis (#813712) 2017 AICPA Newly Released Simulations—Business Task 85882_01 Unit & Sim # / Task Position Sim Task Name: B2_Sim (69) / Task Written Communication (AICPA R-2017) Skill Level: Analysis Representative Task: BIII-B2.4 Web Repo ID: 2092 Page of Registered to David Lewis (#813712) 2017 AICPA Newly Released Simulations—Business Task 85882_01 (Solution) As you know, our provider for general liability insurance has offered us two payment options for coverage during this upcoming policy year It is important to note that our policy year is aligned with both our fiscal year and, of course, the calendar year There are advantages and disadvantages to both options from a working capital and financial statement perspective, which I will cover below The first option is to pay the entire annual amount at the time of commitment, which for us would be approximately one month prior to the beginning of the policy period So we will owe the full amount on December 1, with the policy year beginning on January Paying the full premium up front has a negative impact to working capital from a pure cash flow perspective We will book a prepaid asset for the full amount of the premium paid for up front on our balance sheet, and over the course of the year the prepaid asset will be reduced on a monthly basis as we expense the cost on the income statement The second option entails paying 30 percent of the annual premium owed up front, with the remaining 70 percent payable (along with a percent premium surcharge) over the full 12-month policy period So in this scenario, we would pay 30 percent of the annual premium on December and then we would pay the remaining 70 percent (plus a percent surcharge) across the next 12 months The benefit to this option relative to the first option is that we are able to conserve cash and protect working capital in the early part of the period, allowing us to use that excess cash in other places However, we will end up paying more over the course of the year because of the premium surcharge This premium surcharge will lead to greater monthly expenses and, therefore, lower net income relative to the first option If we are looking at this purely from a cash flow and financial statement perspective, we have two very reasonable options If we are in a good position from a cash flow perspective, then we can go with the first option as it will ultimately save us money in terms of pure outflows and lead to higher net income If we need to conserve our cash up front or we have better places to deploy it, the second option would be best I am available whenever you would like to discuss this further Page of Registered to David Lewis (#813712) 2017 AICPA Newly Released Simulations—Business Task 88237_01 Unit & Sim # / Task Position Sim Task Name: Skill Level: Representative Task: Web Repo ID: B6_Sim (71) / Task Written Communication (AICPA R-2017) Remembering and Understanding BV-C2.1 2093 Page of Registered to David Lewis (#813712) 2017 AICPA Newly Released Simulations—Business Task 88237_01 (Solution) After a thorough investigation into the increase in customer returns over the last six months, we have identified the primary driver as poor product quality There are myriad causes for poor quality, and all need to be addressed, but there are also many solutions we can put into place that should help to reverse this trend and put the company into a better competitive position going forward Poor product quality can result from problems in many places within a production process From a human capital perspective, actions and behaviors by both management and by those who work for management can lead to poor quality Poor planning, misguided incentives, lack of motivation, flawed decision making, and skill deficiencies are all examples of human capital issues that can negatively affect product quality Machines can harm product quality because of wear and tear, poor maintenance, or improper utilization Also, quality will suffer when poor-grade materials or the wrong materials are used for a given process Failure to follow established procedures and/or outdated and inaccurate procedures are another cause of poor quality In order to move forward and reverse this trend, we need to identify each of these problem areas and come up with effective and reasonable solutions Investments in training, staff development, higher-quality machines and materials, and better defined processes are all issues that can be fixed From an overall, entity-wide perspective, we should consider implementing total quality management Within this process, we need to ensure that we are focusing on satisfying our customers Key components of this process are continuous improvement, involving our workforce, delegating and empowering our workforce, and conducting quality audits and gap analysis Improvement in quality will be reflected in a reduction in returns and will also help us reduce conformance costs (such as prevention and appraisal costs) and nonconformance costs (both internal and external failure costs) We can discuss the root causes of these poor-quality issues, as well as next steps toward solving them, when we next meet Page of Registered to David Lewis (#813712) ... David Lewis (#813712) 2017 AICPA Newly Released Simulations—Business BUSINESS 2017 AICPA Newly Released Sims Page of Registered to David Lewis (#813712) 2017 AICPA Newly Released Simulations—Business... = $220,000 Page 18 of 33 Registered to David Lewis (#813712) 2017 AICPA Newly Released Questions—Business 2017 AICPA Business Newly Released MCQs—Difficult (Hard) Rating 18 CPA-05158 According.. .2017 AICPA Newly Released Questions—Business 2017 AICPA Business Newly Released MCQs—Medium (Moderate) Rating CPA-05000 Which of the