Your client, Carson Electronics, Inc., is a wholesaler that distributes computer chips to major retailers around the

Question:

Your client, Carson Electronics, Inc., is a wholesaler that distributes computer chips to major retailers around the world. Since the gross profit margin is normally low in this industry, the company makes large discounted purchases of every item in their inventory. Additionally, it is normal for items in their inventory to become outdated with the release of new technology. Selected financial statement information for Carson Electronics, Inc. for the last three years is as follows:

Additional Information:
1. The number of units sold for 2008, 2009, and 2010 are 457,000, 492,667, and 392,000, respectively.
2. The number of units from the inventory count at year-end for 2008, 2009, and 2010 are 2,519,000, 2,655,666, and 2,495,000, respectively.
3. The company did not write-off any inventory during the three years.

Required:
a. Explain the possible misstatement that is being tested by each analytical procedure below. Compare:
1. Gross margin percentage with previous years
2. The per unit cost of inventory with previous years
3. The number of days sales in inventory with previous years
4. The current year manufacturing costs with previous years
5. The inventory turnover ratio with previous years
b. Perform the analytical procedures for the inventory activities of the company.
c. Explain what the results of the analytical procedures could indicate with regards to the balances of inventory and cost of goodssold.

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...