Response to the following problem:
Your client, Ridgewood Heating and Cooling, specializes in residential air conditioning and heating installations. The company maintains an inventory of air conditioning units, furnaces, and air handling ductwork. The client has provided the following selected financial statement information for the year ending December 31, 2013:
12/31/2013 12/31/2012 12/31/2011
Total Sales $55,443,900 $52,700,440 $50,384,300
Cost of Goods Sold 47,771,880 46,810,900 44,670,400
Ending Inventory 9,582,960 8,100,220 7,730,660
Following is a breakdown of the ending inventory account as of December 31, 2013:
Inventory Description Quantity Ending Balance
AC Unit - Model 635 AC 1,240 Units $806,000
Unit - Model 770 1,733 Units 1,940,960
Furnace - Model 223 1,992 Furnaces 2,589,600
Furnace - Model 225 2,008 Furnaces 2,761,000
Air Handling Ducts 11,883 Boxes 1,485,400
Total $9,582,960
Ridgewood stores inventory in a 100,000 square foot warehouse facility at a location different from its corporate office. A single AC unit is stored on a 4 foot by 4 foot pallet. Warehouse storage shelves allow the company to store 1 pallet on the floor while 2 additional pallets are placed on shelves above the first pallet. Furnaces are also stored on similar sized pallets. Due to the height of the furnaces, only one unit can be stored on a shelf above another pallet that rests on the floor. Air handling ducts are stored in boxes that are 5 foot by 5 foot at the base and 7 feet tall. Three boxes can be stacked on top of the box that sits on the floor.
Required
a. Design analytical procedures to evaluate the reasonableness of the ending inventory account.
b. What concerns, if any, do you have about the ending inventory at Ridgewood Heating and Cooling?