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:

Stress Response

The body's reaction to a challenge or demand, characterized by physiological and psychological changes that prepare the individual to deal with stressors.

Corticosteroids

A class of steroid hormones that are produced in the adrenal cortex of vertebrates and used in medicine to reduce inflammation and suppress the immune system.

Stress Hormone

Hormones, such as cortisol, that are released into the body in response to stress, affecting various bodily functions and aspects of health.

Acute Stress Disorder

A psychiatric condition characterized by the development of severe anxiety and other symptoms within one month after exposure to a traumatic event.