Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 10,000 accounts receivable accounts with a total book value of $1,500,000. Rachel estimates the population’s standard deviation to be equal to $25. After examining the overall audit plan, she believes that the test’s tolerable misstatement is $60,000, and that a risk of incorrect rejection of 5 percent and a risk of incorrect acceptance of 10 percent are appropriate.
a. Calculate the required sample size.
b. Assuming the following results:
Average audited value $146
Standard deviation of sample 28
Use the mean-per-unit method to:
(1) Calculate the point estimate of the account’s audited value.
(2) Calculate the projected misstatement for the population.
(3) Calculate the adjusted allowance for sampling risk.
(4) State Rachel's conclusion in this situation.