BUSA424_Chapter8,9.docx - Chapter 8 9 Ch 8 Question 8-33 a Evaluate the explanation provided by Adams b Calculation of gross margin percentage for drug

# BUSA424_Chapter8,9.docx - Chapter 8 9 Ch 8 Question 8-33 a...

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Chapter 8, 9Ch. 8: Question 8-33a.Evaluate the explanation provided by Adams.b.Calculation of gross margin percentage for drug sales for year 2011:Particular for Year 2011Amount for Year 2011Drug Sale (2011)\$5,126(-) Cost of Goods Sold\$3,045= Gross Margin\$2,081Gross Margin X 100 Drug Sale\$2,081 / \$5,126=Gross Margin %=40.6%Calculation of gross margin percentage for nondrug sales for year 2011:Particular for Year 2011Amount for Year 2011Nondrug Sale (2011)\$9,085(-) Cost of Goods Sold\$6,178= Gross Margin\$2,907Gross Margin X 100 Drug Sale\$2,907 / \$9,085=Gross Margin %=32.0%Calculation of gross margin percentage for 2008 to 2011:DrugsNondrugs201140.6%32.0%201042.2%32.0%200942.1%31.9%200842.3%31.8%The explanation that Adams gave is correct, but overstated. The gross margin percentage for nondrugs is approximately consistent, but for drugs the percentage dropped significantly. The dollar amount difference from 2008 to 2011 is \$82,000 (42.2% - 40.6%x \$5,126,000), which shows the significant drop. c.The gross margin requires intensive investigation in this audit because as an auditor you cannot accept Adam’s explanation is \$82,000 is material. This big of decline could be due

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