You are auditing payroll for the Morehead Technologiescompany for the year ended October 31, 2013. Included next are amounts from the client’strial balance, along with comparative audited information for the prior year.Audited Balance Preliminary Balance10/31/2012 10/31/2013Sales $ 51,316,234 $ 57,474,182Executive salaries 546,940 615,970Factory hourly payroll 10,038,877 11,476,319Factory supervisors’ salaries 785,825 810,588Office salaries 1,990,296 2,055,302Sales commissions 2,018,149 2,367,962You have obtained the following information to help you perform preliminary analyticalprocedures for the payroll account balances.1. There has been a significant increase in the demand for Morehead’s products. Theincrease in sales was due to both an increase in the average selling price of 4 percentand an increase in units sold that resulted from the increased demand and an increasedmarketing effort.2. Even though sales volume increased there was no addition of executives, factorysupervisors, or office personnel.3. All employees including executives, but excluding commission salespeople, receiveda 3 percent salary increase starting November 1, 2012. Commission salespeoplereceive their increased compensation through the increase in sales.4. The increased number of factory hourly employees was accomplished by recallingemployees that had been laid off. They receive the same wage rate as existing employees.Morehead does not permit overtime.5. Commission salespeople receive a 5 percent commission on all sales on which acommission is given. Approximately 75 percent of sales earn sales commission. Theother 25 percent are “call-ins,” for which no commission is given. Commissions arepaid in the month following the month they are earned.a. Use the final balances for the prior year included above and the information in items 1through 5 to develop an expected value for each account, except sales.b. Calculate the difference between your expectation and the client’s recorded amountas a percentage using the formula (expected value -recorded amount)/expected value.
You are auditing payroll for the Morehead Technologies
company for the year ended October 31, 2013. Included next are amounts from the client’s
trial balance, along with comparative audited information for the prior year.
Audited Balance Preliminary Balance
10/31/2012 10/31/2013
Sales $ 51,316,234 $ 57,474,182
Executive salaries 546,940 615,970
Factory hourly payroll 10,038,877 11,476,319
Factory supervisors’ salaries 785,825 810,588
Office salaries 1,990,296 2,055,302
Sales commissions 2,018,149 2,367,962
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 Morehead’s products. The
increase in sales was due to both an increase in the average selling price of 4 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 3 percent salary increase starting November 1, 2012. 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.
Morehead does not permit overtime.
5. Commission salespeople receive a 5 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.
a. Use the final balances for the prior year included above and the information in items 1
through 5 to develop an expected value for each account, except sales.
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.
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