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CMA Final · Cost and Management Audit · Management Audit in Different Functions

While auditing the production function, a management auditor wants to judge whether plant capacity is being used effectively. Which indicator is most relevant?

The ratio of actual output to rated or practical capacity, along with analysis of idle time reasons, is the most relevant indicator of capacity utilisation. It directly measures how effectively plant is used, unlike debtor ratios, advertising growth or board composition, which concern other functions.

  1. ARatio of actual output to rated or practical capacity over the period, with reasons for idle timeCorrect
  2. BRatio of debtors to credit sales
  3. CGrowth in advertising spend over the previous year
  4. DProportion of directors who are independent

Explanation

Capacity utilisation compares actual output with rated or practical capacity, and analysing idle time reveals the causes of underuse. The other measures relate to credit control, marketing and governance, not production efficiency.

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