Question 1 (including A, B parts. Total 20 marks) 2012 68 222 01-Part A (10 marks) You are performing the analytical procedures for the audit of the inventory and warehousing cycle for the Aeron Printers company, a wholesale distributor of computer printers and other peripheral hardware. Your data is show in the following chart 2013 2011 Revenue $76,476 56,741 Cost of Goods sold 36,686 33.125 27.804 Beginning inventory 5.977 5.252 4,173 Ending inventory 7.125 5,977 5.252 The gross margin and inventory turnover industry averages are as follows: 2013 2012 2011 Gross margin% 49% 49% 48% inventory turnover 5.7 5.8 5.9 Required Calculate the following ratios:1) gross margin as a percentage of sales 2) inventory turnover. (2 marks) b. What does the gross margin tell the auditor as an analytical tool? List several possible reasons for the changes in this ratio. (3 marks) c. What does the inventory turnover tell the auditor as an analytical tool? List several possible reasons for the changes in this ratio. (3 marks) d. What should the auditor do te determine the actual cause of the changes. (2 marks) QI-Part B (10 marks) You encountered the following situation during the December 31,2013, physical inventory of Fendy Shoe Distributor Company: a. Fendy maintains a large portion of the shoe merchandise in 10 warehouses throughout the eastern United States. This ensures swift delivery service for its chain of stores. You are assigned alone to the Boston warehouse to observe the physical inventory process. During the inventory count, several express trucks pulled in for loading, Although infrequent, express shipments must be attended to immediately, As a result, the employees who were counting the inventory stopped to assist in loading the express trucks. What should you do? (2 marks) b. 1) In one storeroom of 10,000 items, you have test-counted about 200 items of high value and a few items of low value. You found no misstatements. You also note that the employees are diligently following the inventory instructions. Do you think you have tested enough items? Explain. (1 marks) 2)What would you do if you test-counted 150 items and found a substantial number of counting errors? (1 marks) c. In observing an inventory of liquid shoe polish, you note that one lot is 5 years old. From inspection of some bottles in an open box, you find that the liquid has solidified in most of the bottles. What action should you take? (3 marks) d. During your observation of the inventory count in the main warehouse, you found that most of the prenumbered tags that had been incorrectly filled out are being destroyed and thrown away. What is the significance of this procedure 3