Reference no: EM132598713

You are performing a year-over-year comparison for your audit client, Atkins Ltd. During your planning, you noted a couple of changes that occurred in the current year, and you were provided with the supporting evidence. During the year, Atkins completed a $3 million contract with a new customer. Revenues for this contract were earned during the year. Management stated that the sales to all other customers were comparable to the prior year. Also during the year, all Atkins employees were given a 5% raise, with no other major changes. The following is an excerpt of the year-end income statement.

                                                                    20X2 (in 000s)                         20X1 (in 000s)

Sales                                                     $11,800                           $10,800

Cost of goods sold                                   (7,600)                               (7,500)

Gross profit                                             4,200                                 3,300

Administration costs:

Depreciation                                             $500                                    $530

Labour                                                 536                                            510

Professional fees                                   62                                           60

Interest expense                                       60                                         59

Total administration costs                           1,158                                 1,159

Operating income                                       $3,042                                $2,141

Question 1: Based on the information above, what would be the most appropriate course of action?

a) The variance in professional fees should be investigated.

b) The variance in labour costs should be investigated.

c) The variance in interest expense should be investigated.

d) The variance in sales should be investigated.