A good answer is: $55,500.

It would be inappropriate to state that there is one correct answer for a planning materiality calculation.

$55,500 is reached by carrying out the following calculation:

Average of (½% x $7,596,300) + (1% x $7,596,300) = $57,000 (rounded)

Average of (1% x $3,594,406) + (2% x $3,594,406) = $54,000 (rounded)

$57,000 + $54,000 = $111,000

$111,000 ÷ 2

$55,500

A more cautious approach to the materiality calculation might give an answer of $48,000, which averages this year's calculation with the same calculation for the previous year.

It is perfectly acceptable to use the draft revenue figure for the year, even though it is higher than was budgeted, as the increase has been explained and appears justified. However, planning materiality should be adjusted during the audit if these explanations begin not to appear justified, or in response to other factors arising during the audit.

Lastly, you should remember that although planning materiality is often based on such mathematical equations, materiality has qualitative as well as quantitative aspects and the auditor must not simply view materiality as a percentage of figures in the financial statements.