Herd clothing company manufactures high quality rugby shirts that are marketed under a number of trademarked names.
Question:
Herd clothing company manufactures high quality rugby shirts that are marketed under a number of trademarked names. Doc & Dan have been the company’s auditors for five years. Joe Black, the senior-in-charge of the audit, has reviewed Herd’s controls over purchasing and inventory, and determined that a number of controls can be relied upon to reduce control risk. Black has decided to test two control procedures over purchases and inventory: (1) purchase orders are agreed to receiving reports and vendor’s invoices for product, quantity, and price; and (2) inventory is transferred to raw material stores using an approved, prenumbered receiving report. Black decided to use a non-statistical sampling approach based on the following judgments for each control procedure and has judgmentally decided to use a sample size of 75 purchase orders for control 1 and 30 receiving reports for control 2. Control Procedure Parameters 1 2 Desired confidence 95% 90% Tolerable deviation rate 7.0% 9.0% Expected population deviation rate 2.0% 2.5% Number of deviations 1 1
If Black used statistical sampling, what would the correct sample size be for each of the control procedures?
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins