An accounting firm uses partners and staff to produce an audit. The quality of the audit (as measured by reduction in litigation liability and the likelihood of audit errors) is a function of the composition of the audit team. In particular, ?=??.???.? where r is the audit quality, P is the partner-hours devoted to the audit, and S is the staff-hours devoted to the audit. Notice that both partners and staff are essential for audit quality, and that audit quality increases in the amount of either, but at a decreasing rate. The cost of a partner-hour is 50 while the cost of a staff-hour is 5. The budget for this audit is 5000. How many partner and staff hours will the accounting firm choose to maximize quality subject to this budget constraint? An accounting firm uses partners and staff to produce an audit. The quality of theaudit (as measured by reduction in litigation liability and the likelihood of audit errors)is a function of the composition of the audit team. In particular,r = p0.2 50.4where ris the audit quality, Pis the partner-hours devoted to the audit, and Sis thestaff-hours devoted to the audit. Notice that both partners and staff are essential foraudit quality, and that audit quality increases in the amount of either, but at adecreasing rate.The cost of a partner-hour is 50 while the cost of a staff-hour is 5. The budget for thisaudit is 5000. How many partner and staff hours will the accounting firm choose tomaximize quality subject to this budget constraint?

- Audit quality function: - Cost of a partner-hour: $50- Cost of a staff-hour: $5- Budget: $5000

Answered: ne or a mis to

Contemporary Auditing

11th Edition

ISBN:9781337650380

Author:KNAPP

Publisher:KNAPP

Chapter6: Professional Roles

Section6.4: Tommy O’connell, Audit Senior

Problem 1Q

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An accounting firm uses partners and staff to produce an audit. The quality of the audit (as measured by reduction in litigation liability and the likelihood of audit errors) is a function of the composition of the audit team. In particular, ?=??.???.?

where r is the audit quality, P is the partner-hours devoted to the audit, and S is the staff-hours devoted to the audit. Notice that both partners and staff are essential for audit quality, and that audit quality increases in the amount of either, but at a decreasing rate.

The cost of a partner-hour is 50 while the cost of a staff-hour is 5. The budget for this audit is 5000. How many partner and staff hours will the accounting firm choose to maximize quality subject to this budget constraint?