You are auditing payroll for the Technologies company for the year ended October 31, . Included next are amounts from the client’s trial balance, along with comparative audited information for the prior year. Requirements
a. Use the final balances for the prior year and the information in items 1 through 5 to develop an expected value for each account, except sales. (Round to the nearest whole dollar.)
b. Calculate the difference between your expectation and the client’s recorded amount as a percentage using the formula (expected value-recorded amount)/expected value. (Round to the nearest hundredth percent, X.XX%.)
(Note 1: When computing the expected value of factory hourly payroll, you must take into consideration both the 4% wage increase and the 9 % increase in the number of units produced and sold.
Note 2: Use the increase in the 10/31/2016 preliminary sales balance over the 10/31/15 audited sales balance to determine the expected value for sales commissions on 10/31/2016.)
Requirement a. (A) (B) Preliminary Balance Expected Value 10/31/2016 10/31/2016 Executive salaries 609,312 Factory hourly payroll (see Note 1) 11,210,049 Factory supervisors’ salaries 760,800 Office salaries 2,713,957 Sales commissions (see Note 2) 2,395,881 Audited Balance Preliminary Balance 10/31/2015 10/31/2016 Sales* $55,934,900 $64,884,484 Executive salaries 530,284 609,312 Factory hourly payroll 10,798,845 11,210,049 Factory supervisors’ salaries 690,022 760,800 Office salaries 2,395,865 2,713,957 Sales commissions 2,305,911 2,395,881
*Sales have increased 16% over prior year. 7% percent of that is due to an increase in the average selling price. The remaining 9% is attributed to an increase in the number of units sold.
You have obtained the following information to help you perform preliminary analytical procedures for the payroll account balances.
1. There has been a significant increase in the demand for Tides In’s products. The increase in sales was due to both an increase in the average selling price of7 percent and an increase in units sold that resulted from the increased demand and an increased marketing effort.
2. Even though sales volume increased there was no addition of executives, factory supervisors, or office personnel.
3. All employees including executives, but excluding commission salespeople, received a 4 percent salary increase starting November 2015, . Commission salespeople receive their increased compensation through the increase in sales.
4. The increased number of factory hourly employees was accomplished by recalling employees that had been laid off. They receive the same wage rate as existing employees. Tides In does not permit overtime.
5. Commission salespeople receive a 3 percent commission on all sales on which a commission is given. Approximately 75 percent of sales earn sales commission. The other 25 percent are “call-ins,” for which no commission is given. Commissions are paid in the month following the month they are earned.