Refer to problem 6-29, concerning discounts on raw materials and purchased parts. As an alternative to ratio or difference estimation, the CPA is considering dollar unit difference estimation.

Required:

a. Would the total sample size for dollar unit difference estimation probably be larger than for ratio estimation ? Explain the reasons for your answer.

b. Would the number of invoices that would need to be examined to calculate the discounts not taken be larger or smaller for dollar unit difference estimation than for ratio estimation?

c. What are the advantages and disadvantages of dollar unit difference estimation compared to unstratified ratio estimation in this situation?

6-29. Reynolds Products Inc. buys large amounts of raw materials and parts from approximately 600 different vendors. Individual raw-materials purchases range from less than $100 to more than $10,000. All acquisitions of goods and services transactions, except payroll, are recorded on a computer listing. The listing shows the purchase order number, date received, vendor's invoice number, vendor, amount of the acquisition at gross, and the account distribution. When more than one account is involved for a transaction, each account number and the amount assigned to each account are also shown. During the past three years, the cash position of Reynolds Products has been exceptionally adverse. The result has been an inability to make timely payments to vendors. It has been impractical to take discounts for timely pay- ment of purchases. The cash position of Reynolds has now improved somewhat. Currently, management is negotiating with banks and several potential major investors to improve the cash position further. One type of information management wants is the potential savings that could be achieved by taking all discounts on