Reference no: EM13483212
Ice Cream Galaxy (ICG) operates out of four stalls in an amusement park in Florida. The stalls are of equivalent size and are portable. ICG is allowed to position the stalls anywhere in the park. ICG offers three flavors of soft ice cream cones and a choice of toppings.
The business is tied to the number of customers that pass by the stalls. Therefore, management monitors where the stalls should be located (based on which rides are drawing the crowds, special attractions, etc.) so as to get the most sales possible. Sales by day is a key management statistic.
Management has monitored sales per person entering the park and has found the percentages to be consistent over the past three years.
Sales analysis:
Total 20X1 # of days Sales/Day
-weekdays $2,837 127 127 $22,340
- weekends 4,983,524 56 88,992
Total $7,820,656 183 $42,736
# of days open:
20X2 20X1
-weekdays 127 127
-weekends 56 56
Total 183 183
Price tables:
20X2 20X1
Small $1.80 $1.60
Medium 3.00 2.40
Large 4.00 3.60
Toppings 0.40 0.40
Ice Cream Galaxy (ICG) monitors the sales mix of its ice cream cones to ensure that prices are set appropriately. Prices are set so that small cones are cheap enough that parents will buy them for each child. Large cone prices are set so that adults will choose to buy a large cone instead of a medium cone because the difference is not that much.
Management experience is that the sales mix is fairly constant as follows:
20X2 20X1
Small 40% 40%
Medium 20% 20%
Large 40% 40%
Comparative purchase information:
20X2 20X1
Purchases $772,016 $663,892
Change in purchase price + 2%
ICG enters into a fixed price contract each year for the ice cream.
Comparative park attendance information:
20X2 20X1
Park attendance:
n Weekdays 1,601,248 1,424,198
n Weekends 1,563,674 1,430,813
Total 3,164,922 2,855,011
Temperature information - weekday/weekend split:
Number of days over 80° per weather service:
20X2 20X1
Weekdays 66 45
Weekends 14 40
Total 80 85
Management tracks the number of days over 80° because they have noted in the past that sales per person entering the park increases by 30% when it is over 80°.
Required:
The senior on the audit of Ice Cream Galaxy wants to use analytical procedures as substantive evidence to support the balance in the revenue account. You were asked to complete the following:
1. Identify the factors that are expected to affect the amount of gross revenue for Ice Cream Galaxy.
2. Develop an expectation of the amount of gross revenue (an actual dollar amount) for 20X2 based upon the information provided.
3. Assume that the tolerable difference for this account is $400,000 and that the recorded balance is $9,265,491. Based upon your answer to part 2, what would you conclude? What, if any, follow-up procedures would you perform?