When applying a classical variables sampling plan, such as ratio or difference estimation or MPU estimation, an auditor must estimate the risk of incorrect rejection, the risk of incorrect acceptance, and tolerable error, each of which is determined separately, but integrated before calculating sample size.

Required:

1. How are the risks of incorrect rejection and incorrect acceptance and tolerable error integrated in variables sampling plans?

2. Determine a desired allowance for sampling risk assuming:

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Acceptable risk of incorrect rejection Acceptable risk of incorrect acceptance Tolerable error .20 = .10 = $40,000