You desire to estimate the amount of the inventory of your client. Draper. Inc. You satisfied yourself earlier as to the inventory quantities. During the audit of the pricing and extension of the inventory, the following data were gathered using appropriate unrestricted random sampling with replacement procedures.

Required:

a. According to the sample results, what is the estimate of the total value of the inventory using mean estimation? Show computations.

b. Independent of your answer to problem (a), assume that the book value of Draper's inventory is \(\$ 1,700,000\), and on the basis of the sample results, the estimated total value of the inventory is \(\$ 1,690,000\). The tolerable misstatement is \(\$ 15,000\), and the achieved allowance for sampling risk is \(\$ 8,000\). Discuss the audit and statistical considerations the auditor must evaluate before deciding whether to accept the hypothesis that the evidence supports the book value.

Transcribed Image Text:

Total items in the inventory (N) Total items in the sample (n) Total audited value of items in the sample 12.700 400 $38,400