The following are sales, cost of sales, and inventory data for Aladdin Products Supply Company, a wholesale distributor of cleaning supplies. Dollar amounts are in millions.

a. Calculate the following ratios, using an electronic spreadsheet program (Instructor's option):
(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 20X9. Could any of the fluctuations in the calculated ratios indicate a possible material misstatement? Demonstrate this by using the spreadsheet program to perform a sensitivity analysis.
d. What should the auditor do to determine the actual cause of the changes?

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20X9 20X8 20X7 20X6 Sales Cost of sales Beginning inventory Ending inventory $23.2 17.1 2.3 2.9 $21.7 16.8 2.1 2.3 $196 15.2 1.9 2.1 $174 13.5 1.9 1.9