In Preparing for an Audit of the Retail Footwear Division

question 78

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: $$\begin{array} { l r r r r } & \text { All } & \text { Northeast } & \text { Southwest } & \text { Mid-Central } \\& \text { Stores } & \text { Region } & \text { Region } & \text { Region } \\& \$ 736,000 & \$ 840,000 & \$ 760,000 & \$ 630,000 \\\text { Average sales per store } & \$ 375,000 & \$ 420,000 & \$ 325,000 & \$ 395,000 \\\text { Average cost of goods sold per store } & 48 & 13 & 18 & 17 \\\text { Number of stores } & 1,800 & 2,200 & 1,850 & 1,550 \\\text { Average square feet per store } & \$ 137,000 & \$ 152,000 & \$ 140,000 & \$ 122,000 \\\text { Average sales per full-time employee } & \$ 98,000 & \$ 102,000 & \$ 82,000 & \$ 112,000 \\\text { Average wage related expense per store } & \$ 35,000 & \$ 285,000 & \$ 320,000 & \$ 115,000\end{array}$$ 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.

---

Definitions:

Opportunity

A set of circumstances that makes it possible to do something or that creates a chance for progress or advancement.

Maslow

A renowned American psychologist who developed the concept of Maslow's hierarchy of needs, which suggests that psychological well-being is based on meeting certain fundamental human needs.

Self-Actualization

The realization or fulfillment of one's talents and potentialities, especially considered as a drive or need present in everyone.

Hierarchy Of Needs

A framework proposed by Abraham Maslow that outlines a series of human needs ranging from the most basic physiological needs to higher-order needs of self-actualization.