In Preparing for an Audit of the Retail Footwear Division

question 65

Multiple Choice

In preparing for an audit of the retail footwear division of a major retail organization,the auditor gathered the following information about the organization's stores:
$\begin{array}{lr}&\text { All } & \text { Northeast } & \text { Southwest } & \text { Mid-Centra } \\&\text { Stores } & \text { Region } & \text { Region } & \text { Region }\\ \text { Average sales per store } &\$736,000&\$840,000&\$760,000&\$630,000\\ \text { Average cost of goods sold per store} &\$375,000&420,000&\$325,000&\$395,000\\ \text { Number of stores } &48&13&18&17\\ \text { Average square feet per store} &1,800&2,200&1,850&1,550\\ \text { Average sales per full-time employee } &\$137,000&\$152,000&\$140,000&\$122,000\\ \text { Average wage related expense per store} &\$98,000&\$102,000&\$82,000&\$112,000\\ \text {Average net profit contribution per store } &\$238,000&\$285,000&\$320,000&\$115,000\\ &\\ \text { } &\\\end{array}$

-An auditor performs analytical procedures that involve comparing the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years.The auditor notes a significant increase in the gross margin at one division.The auditor does some preliminary investigation and also notes that there were no changes in products,production methods,or divisional management during the year.Based on the above information,the most likely cause of the increase in gross margin would be:

• A)An increase in the number of competitors selling similar products.
• B)A decrease in the number of suppliers of the material used in manufacturing the product.
• C)An overstatement of year-end inventory.
• D)An understatement of year-end accounts receivable.

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Definitions:

Antianxiety Drugs

Medications used to treat anxiety disorders by reducing symptoms of anxiety.

Antipsychotic Drugs

Medications designed to treat symptoms of psychosis, including hallucinations, delusions, and disturbed thoughts, commonly used in schizophrenia and bipolar disorder.

Hallucinations

Perceptions in the absence of external stimuli, such as seeing or hearing things that aren't there.

Delusions

False beliefs held despite strong evidence against them, often due to a psychological disorder.