In auditing the valuation of inventory, the auditor, Claire Butler, decided to use difference estimation. She decided to select an unrestricted random sample of 80 inventory items from a population of 1,840 that had a book value of $175,820. Butler decided in advance that she was willing to accept a maximum misstatement in the population of $6,000 at an ARIA of 5 percent. There were eight misstatements in the sample, which were as follows:
Audit Value | Book Value | Sample Misstatements | |
$ 812.50 | $ 740.50 | $(72.00) | |
12.50 | 78.20 | 65.70 | |
10.00 | 51.10 | 41.10 | |
25.40 | 61.50 | 36.10 | |
600.10 | 651.90 | 51.80 | |
.12 | 0 | (.12) | |
51.06 | 81.06 | 30.00 | |
83.11 | 104.22 | 21.11 | |
Total | $1,594.79 | $1,768.48 | $173.69 |
a. Calculate the point estimate, the computed precision interval, the confidence interval, and the confidence limits for the population. Label each calculation. Use a computer for this purpose (instructor’s option).
b. Should Butler accept the book value of the population? Explain.
c. What options are available to her at this point?
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