Response to the following problem:
The following are sales, cost of sales, and inventory data for Aladdin Products Supply Company, a wholesale distributor of cleaning supplies. Dollar amounts are in millions.
|
|
2013
|
2012
|
2011
|
2010
|
|
Sales
|
$92.8
|
$86.8
|
$78.4
|
$69.6
|
|
Cost of sales
|
68.4
|
67.2
|
60.8
|
54.0
|
|
Beginning inventory
|
9.2
|
8.4
|
7.6
|
6.0
|
|
Ending inventory
|
11.6
|
9.2
|
8.4
|
7.6
|
Required
a. Calculate the following ratios, using an electronic spreadsheet program (instructor's option):
(1) Gross margin as a percentage of sales
(2) Inventory turnover
b. List several logical causes of the changes in the two ratios.
c. Assume that $2,000,000 is considered material for audit planning purposes for 2013. Do any of the fluctuations in the computed ratios indicate a possible material misstatement? Demonstrate this by using the spreadsheet program to perform a sensitivity analysis.
d. What should the auditor do to determine the actual cause of the changes?