Question

AP11.2 (LO 2) Analytical procedures The following data was taken from the production and accounting records for Casuccio Manufacturing, Inc.

		Unaudited 2023		Audited 2022		Audited 2021
Operating Data
Capacity in units		450,000		450,000		450,000
Production in units		450,000		400,000		300,000
Inventory in units		32,000		28,000		21,000
Financial Data ($000)
Total revenues		$35,200		$27,500		$21,200
Total assets		$23,000		$19,500		$15,700
Accounts receivable, net		$5,900		$4,300		$3,900
Bad debt expense		$175		$135		$105
Accounts receivable written off		$165		$125		$100

Required

1. Calculate the following ratios for 2023, 2022, and 2021:

1. Sales to total assets.

2. Sales to production.

3. Revenue per unit sold.

4. Accounts receivable growth to sales growth.

5. Uncollectible accounts expense to net credit sales.

6. Uncollectible accounts expense to accounts receivable written off.

7. Accounts receivable turnover in days.

1. Describe the implications of the resulting ratios for the auditor's audit strategy for the year 2023.

2. What specific assertions are likely to be misstated?

3. How should the auditor respond in terms of potential audit tests?

Answer 1

	Unaudited 2023	Audited 2022	Audited 2021
Capacity in Units	4,50,000	4,50,000	4,50,000
Production in Units	4,50,000	4,00,000	3,00,000
Inventory in Units	32,000	28,000	21,000
Financial Data ($000)
Total Revenues	35,200	27,500	21,200
Total Assets	23,000	19,500	15,700
Accounts Receivable, Net	5,900	4,300	3,900
Bad Debt Expense	175	135	105
Accounts Receivable Written Off	165	125	100
Calculate the Ratio
a. Sales to total assets = sales/Average total assets	1.53	1.41	1.35
b. Sales to production = Sales/Production in Units	0.08	0.07	0.07
c.Revenue per unit sold = Sales/ Production in units - inventory in units	1.10	0.98	1.01
d.Accounts receivable growth to sales growth; ((art/art-1)-1)/((salest/sales t-1)-1)	1.33	0.35	#DIV/0!
e.Uncollectable accounts expense to net credit sales = Bad debt exp./net sales	0.0050	0.0049	0.0050
f. Uncollectable accounts expense to accounts receivable written off	1.06	1.08	1.05
g. Accounts receivable turn days = Average AR/Sales*365	61.18	57.07	67.15
b)
Receivables are growing faster than sales.In addition,Sales price per unit has gone up and the ratio of sales to total assets has increased.In addition, during receivable turn days increased during the last year, and the uncollectable account expense to account receivable write-off has gone down.