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, 2018:

Following is a breakdown of the ending inventory account as of December 31, 2018:

Ridgewood stores inventory in a 100 000-square-foot warehouse facility at a location different from its corporate office. A single air conditioning unit is stored on a 4 foot-by-4-foot pallet.

Warehouse storage shelves allow the company to store one pallet on the floor while two 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 feet by 5 feet 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?

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12/31/2017 12/31/2018 $55 443 900 12/31/2016 $50 384 300 Total sales $52 700 440 Cost of goods sold 47 771 880 44 670 400 46 810 900 Ending inventory 9 582 960 8 100 220 7730 660 Ending Balance $ 806 000 Inventory Description AC unit - Model 635 AC unit - Model 770 Furnace - Model 223 Quantity 1 240 units 1 733 units 1 992 furnaces 2 008 furnaces 11 883 boxes 1 940 960 2 589 600 Furnace - Model 225 Air handling ducts Total 2 761 000 1 485 400 $9 582 960