McMullen and Mulligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. Jim Sigmund, senior-in-charge of the audit, plans to use MUS to audit Cusicks inventory account. The balance at December 31 was $9,000,000.

Required: a. Based on the following information, compute the required MUS sample size:

Tolerable misstatement = $360,000

Expected misstatement = $90,000

Risk of incorrect acceptance = 5%

b. Nancy Van Pelt, staff accountant, used the sample items selected in part a and performed the audit procedures listed in the inventory audit program. She notes the following misstatements:

Misstatement number	book value	audit value
1	10,000	7,500
2	9,000	6,000
3	60,000	0
4	800	640

Using this information, calculate the upper misstatement limit. What conclusion should Van Pelt make concerning the inventory?

c. Assume that, in addition to the four misstatements identified in part b, Van Pelt had identified the following two understatements:

misstatement number	book value	audit value
5	6000	6500
6	750	800

Calculate the net projected population misstatement.