The table below shows sales, cost of sales, and inventory data for Aladdin Products Supply Inc., a wholesale distributor of cleaning supplies. All amounts are in thousands.

REQUIRED
a. Calculate the following ratios:
(1) Gross margin as a percentage of sales.
(2) Inventory turnover.
b. List several logical causes of the changes in the two ratios.
c. Assume that $500,000 is considered material for audit planning purposes for 2012. Could any of the fluctuations in the computed ratios indicate a possible material misstatement? Demonstrate this by performing a sensitivity analysis.
d. What should the auditor do to determine the actual cause of the changes?

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2012 2011 2010 2009 Sales Cost of sales Beginning inventory Ending inventory $23.2 $21.7 $19.6 $17.4 17.1 16.8 15.2 13.5 2.3 2.1 1.9 1.5 2.9 2.3 2.1 1.9