You are testing the summarization and cost of raw materials and purchased part inventories as part of the audit of Rubber Products and Supply Corp. There are 2,000 inventory items with a total recorded value of $648,500 Your audit tests will compare recorded descriptions and counts with the final inventory listing, compare unit costs with vendors' invoices, and extend unit costs times quantity. A misstatement in any of those is defined as a difference. You plan to use monetary unit sampling.
You make the following decisions about the audit of inventory:

Required

a. What are the advantages of using monetary unit sampling in this situation?

b. What is the sample size necessary to achieve your audit objectives using monetary unit sampling?

c. Disregarding your answer to part (b), assume that a sample of 60 items is selected and that the following differences between book and audited values are identified (understatements are in parentheses). The book or recorded amounts are also shown.

For each of the other 116 items in the sample, there was no difference between the book and the audited values.
Based on this sample, calculate the adjusted over¬ statement and understatement error bounds.

d. Is the book value misstated?

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Tolerable misstatement (same for upper as for lower) Average percent of error assumption-overstatements Average percent of error assumption-understatements Acceptable risk of incorrect acceptance Estimated error rate in the population $24,000 50% 100% 5% 5%