In Preparing for an Audit of the Retail Footwear Division

question 80

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: $$\begin{array} { | l | r | r | r r | } \hline & \text { All } & \text { Northeast } & \text { Southwest Mid-Central } \\& \text { Stores } & \text { Fegion } & \text { Region } & \text { Region } \\\hline \text { Average sales per store } & \$ 736,000 & \$ 840,000 & \$ 760,000 & \$ 630,000 \\\hline \text { Average cost of goods sold per store } & \$ 375,000 & \$ 420,000 & \$ 325,000 & \$ 395,000 \\\hline \text { Number of stores } & 48 & 13 & 18 & 17 \\\hline \text { Average square feet per store } & 1,800 & 2,200 & 1,850 & 1,560 \\\hline \text { Average sales per full-time employee } & \$ 137,000 & \$ 152,000 & \$ 140,000 & \$ 122,000 \\\hline \text { Average wage related expense per store } & \$ 98,000 & \$ 102,000 & \$ 82,000 & \$ 112,000 \\\hline \text { Average net profit contribution per store } & \$ 238,000 & \$ 285,000 & \$ 320,000 & \$ 115,000 \\\hline\end{array}$$ 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:

Process Costing

An accounting methodology that traces and accumulates direct costs, and allocates indirect costs, of a manufacturing process.

Accumulates Costs

The process of gathering, recording, and classifying expenses incurred in the production of goods or services, crucial for determining product pricing and profitability.

Time Periods

Defined durations or intervals of time, often used for financial reporting, project phases, or historical analysis.

Job Costing

A method of costing that assigns costs directly to specific jobs or projects, commonly used in industries like construction and consulting.