Which analytical procedure would be most helpful in alerting the auditor to the possibility of obsolete inventory? Compare
A) current year manufacturing costs with previous years' costs.
B) gross margin percentage with previous years' percentages.
C) inventory turnover ratio with previous years' ratios.
D) unit costs of inventory with previous years' costs.

Question

Quizplus · Accepted Answer

Comparing the inventory turnover ratio with previous years' ratios would be the most helpful in alerting the auditor to the possibility of obsolete inventory. A decrease in the inventory turnover ratio could indicate that inventory is not selling as quickly as in previous years, which may be due to obsolescence. However, the other options may not be as helpful in detecting obsolete inventory. Current year manufacturing costs may not necessarily reflect the valuation of inventory, as it does not take into account the actual sales or market demand. Gross margin percentage may also not indicate the possibility of obsolete inventory, as a decrease in gross margin could be due to factors such as increased competition or general economic conditions. Unit costs of inventory may also not be as helpful, as it does not take into account the market demand or selling price.

Which Analytical Procedure Would Be Most Helpful in Alerting the Auditor