Your comparison of the gross margin percent for  Jamberson Drugs for the years 20132013 through 20162016 indicates a significant decline. This is shown by the following information:

The following additional information is obtained from independent sources and the client's records as a means of investigating the controller's explanations:

Requirements 

a. Evaluate the explanation provided by Averett. Show calculations to support your conclusions. 

b. Which specific aspects of the client's financial statements require intensive investigation in this audit? 

Requirement 

a. Evaluate the explanation provided by Averett. Show calculations to support your conclusions. First, compute the gross margin percentage for drug sales for 20162016 through 20132013, then, compute the gross margin percentage for nondrug sales for 20162016 through 20132013. (Round your answers to the nearest tenth percent, XX.X%.) Drugs 2016 % 2015 % 2014 % 2013 %  

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Sales (thousands) CGS (thousands) Gross margin Percent $ S 2016 15,150 $ 9,363 5,787 38.2 S 2015 13,950 8,496 5,454 39.1 $ S 2014 12,350 $ 7,496 4,854 S 39.3 2013 11,400 6,897 4,503 39.5 A discussion with Margie Averett, the controller, brings to light two possible explanations. She informs you that the industry gross profit percent in the retail drug industry declined fairly steadily for three years, which accounts for part of the decline. A second factor was the declining percent of the total volume resulting from the pharmacy part of the business. The pharmacy sales represent the most profitable portion of the business, yet the competition from discount drugstores prevents it from expanding as fast as the nondrug items such as magazines, candy, and many other items sold. Averett feels strongly that these two factors are the cause of the decline. 2016 2015 2014 2013 S Drug Sales 5,098 5.127 4,884 4,788 Jamberson Drugs ($ in thousands) Drug Cost of Goods Sold Nondrug Sales $ 10.052 8.823 7,466 6,612 S 3.018 2,948 2,823 2,753 $ Nondrug Cost of Goods Sold 6.755 5,929 5,032 4,476 Industry Gross Profit Percent for Retailers of Drugs and Related Products 35.6 35.7 35.8 36.1 Sales (thousands) CGS (thousands) Gross margin Percent $ S 2016 15,150 $ 9,363 5,787 38.2 S 2015 13,950 8,496 5,454 39.1 $ S 2014 12,350 $ 7,496 4,854 S 39.3 2013 11,400 6,897 4,503 39.5 A discussion with Margie Averett, the controller, brings to light two possible explanations. She informs you that the industry gross profit percent in the retail drug industry declined fairly steadily for three years, which accounts for part of the decline. A second factor was the declining percent of the total volume resulting from the pharmacy part of the business. The pharmacy sales represent the most profitable portion of the business, yet the competition from discount drugstores prevents it from expanding as fast as the nondrug items such as magazines, candy, and many other items sold. Averett feels strongly that these two factors are the cause of the decline. 2016 2015 2014 2013 S Drug Sales 5,098 5.127 4,884 4,788 Jamberson Drugs ($ in thousands) Drug Cost of Goods Sold Nondrug Sales $ 10.052 8.823 7,466 6,612 S 3.018 2,948 2,823 2,753 $ Nondrug Cost of Goods Sold 6.755 5,929 5,032 4,476 Industry Gross Profit Percent for Retailers of Drugs and Related Products 35.6 35.7 35.8 36.1

Answer rating: 100% (QA)

a Gross margin percentage of drug and nondrug for JambersonJamberson Drugs Company is Drug sa... View the full answer