Module IV: MUS SamplingFactory Equipment Additions

Richard Derick has asked you to develop a sampling plan to determine the extent of misstatements in classifying expenditures as repairs and maintenance expense or factory equipment additions. Given the problems noted during control testing (as described in Module II), Derick believes that significant misstatements may have occurred.

The same vendor's invoice frequently contains charges for parts and supplies as well as equipment, and the Brony's Bikes employees preparing the vouchers sometimes fail to distinguish among the charges and simply indicate "factory equipment" as the debit if the invoice amount is large. Inasmuch as this type of misstatement would cause an overstatement in the factory equipment account, Derick instructs you to use MUS sampling for the lower stratum to determine the extent to which such misstatements may have occurred during 20X9. In the Johnstone textbook, MUS is used interchangeably with the term PPS, which MUS is a subset. Of the total debits, $89,860,000 to factory equipment during 20X9, major additions in the amount of $77,260,000 have been made to replace worn-out equipment. The lower stratum contains 1,246 items for a total dollar amount of $12,600,000. Derick has decided to audit the upper stratum of the population containing the major additions in its entirety. You are asked to test the lower stratum on a sampling basis.

Requirements

1. Using Excel download the file labeled "20X9_mus." Locate the following documentation in the file: WP 11.3AMonetary unit sampling plan; WP 11.3BMonetary unit sampling planprojected misstatement; and WP 11.3CMonetary unit sampling plancomputed precision and upper misstatement limit.

Scroll to WP 11.3A, "Monetary Unit Sampling Plan." Determine sample size from textbook Exhibit 8.5 Table 1 assuming Derick has set the parameters stated below. Calculate the sampling interval.

Risk of incorrect acceptance:	5% or 95% confidence
Expected population deviation rate:	1% based on auditor's prior experience with the entity
Tolerable rate of deviation:	6% determined by auditor; if actual exceeds 6%, the control probably has faile

***** I NEED HELP WITH THE FOLLOWING QUESTIONS ONLY ****

6. Enter the amount of the projected misstatement total determined in column 6. $

7. Enter the amount of upper misstatement limit determined in column 3. $

C D F | G | H I 1 VP 11.34 Brony's Bikes Monetary Unit Sampling Plan Factory Equipient Deceber 31, 2019 | E | Prepared by: Date: Revieved by: Date: 6 Lover stratur debit postings to factory equipaent : Dollar arount 8 Number of itens acquired 9 Risk of incorrect acceptance 10 Expected population deviation rate 11 Tolerable rate of deviation 12 Sample size | 13 Sampling interval 14 $12,600,000.00 1,246 5.00% 1.00% 6.00% 15 16 17 VP 11.3B 18 19 Brony's Bikes Honetary Unit Sampling Plan Factory Equipient Projected Hisstatenent Deceber 31, 2019 Prepared by: Date: Revieved by: Date: = (1) (2) (3) (6) (4) (5) Host Likely Tainting % Sampling Misstaterent (BY-AV)/BY Interval (4) x (5) Book Value iudited Value Error (BY-AV) 25 $ Number Vendor 26 27 372134 Loxley Hachine Vorks, Ltd. 28 1778927 Gerald Equipaent and Part 29 3668498 Cradle Corporation 30 6333750 Dorr's Machine Parts and 31 9873625 Johnson's Velding and Mac 32 10224680 Laidlor Parts and Repair 33 11440670 Joplin Machinery 34 12143770 Drexle Freight Handlers $1,665,800 $23,660 $985,300 $12,000 $155,700 $287,900 $1,466,800 $12,600 $145,200 $0 $512,000 SO $100,000 $125,000 $1,224,500 SO $1,520,600 $23, 660 $473,300 $12,000 $55,700 $162,900 $242,300 $12,600 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% $1,520,600 $23,660 $473,300 $12,000 $55,700 $162,900 $242,300 $12,600 $2,503,060 $2,503,060 == = = == = = == = = = == = = == = = == = = Awwww B D E 40 41 VP 11.30 Brony's Bikes Honetary Unit Sampling Plan Factory Equipient Computed Precision and Upper Nisstatenent Linit December 31, 2019 Prepared by: Date: Revieved by: Date: 44 46 TREF! 48 Basic Precision $0 49 Interval froi "P 11 3A above $0 50 Textbook Exhibit 8.9 5% coluu Increnental Alloyance for Sampling Error no ano 56 57_$ Nuber (1) (2) (3) Ranked Increnental Increnental Projected Confidence Allowance Errors Factor (1) x (2) Vendor $0 $0 SO Increnental Allowance for Sampling Risk Upper Misstatenent Linit Audit Adjustuent No. 1 $2,503,060 73 5100 Cost of Goods Sold-Grand Prix Touring Bike $378,514 74 5200 Cost of Goods Sold-Phoenix Touring Bike $361,537 75 5300 Cost of Goods Sold-Pike's Peak Mountain Bike $984,346 76 5400 Cost of Goods Sold-Hinalaya Mountain Bike $242,559 77 5500 Cost of Goods Sold-Waistliner Stationary Bike $536,103 78 1530 Factory Equipient 79 To adjust factory equipient and cost of goods sold accounts 80 for repairs erroneously debited to factory equipaent. 81 The allocation is in proportion to the relative arounts 82 of cost of goods sold, as follovs: 83 84 ACCOUNT AMOUNT NUMBER (thousands) 86 Cost of Goods Sold: 87 5100 $34,448 88 5200 $32,903 5300 $89,584 5400 $22,075 5500 $48,790 85 PERCENT 15% 14% 397 10% 21% ON $227,800 = = = = = == = 100% = = = = = == = = = = = C D F | G | H I 1 VP 11.34 Brony's Bikes Monetary Unit Sampling Plan Factory Equipient Deceber 31, 2019 | E | Prepared by: Date: Revieved by: Date: 6 Lover stratur debit postings to factory equipaent : Dollar arount 8 Number of itens acquired 9 Risk of incorrect acceptance 10 Expected population deviation rate 11 Tolerable rate of deviation 12 Sample size | 13 Sampling interval 14 $12,600,000.00 1,246 5.00% 1.00% 6.00% 15 16 17 VP 11.3B 18 19 Brony's Bikes Honetary Unit Sampling Plan Factory Equipient Projected Hisstatenent Deceber 31, 2019 Prepared by: Date: Revieved by: Date: = (1) (2) (3) (6) (4) (5) Host Likely Tainting % Sampling Misstaterent (BY-AV)/BY Interval (4) x (5) Book Value iudited Value Error (BY-AV) 25 $ Number Vendor 26 27 372134 Loxley Hachine Vorks, Ltd. 28 1778927 Gerald Equipaent and Part 29 3668498 Cradle Corporation 30 6333750 Dorr's Machine Parts and 31 9873625 Johnson's Velding and Mac 32 10224680 Laidlor Parts and Repair 33 11440670 Joplin Machinery 34 12143770 Drexle Freight Handlers $1,665,800 $23,660 $985,300 $12,000 $155,700 $287,900 $1,466,800 $12,600 $145,200 $0 $512,000 SO $100,000 $125,000 $1,224,500 SO $1,520,600 $23, 660 $473,300 $12,000 $55,700 $162,900 $242,300 $12,600 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% $1,520,600 $23,660 $473,300 $12,000 $55,700 $162,900 $242,300 $12,600 $2,503,060 $2,503,060 == = = == = = == = = = == = = == = = == = = Awwww B D E 40 41 VP 11.30 Brony's Bikes Honetary Unit Sampling Plan Factory Equipient Computed Precision and Upper Nisstatenent Linit December 31, 2019 Prepared by: Date: Revieved by: Date: 44 46 TREF! 48 Basic Precision $0 49 Interval froi "P 11 3A above $0 50 Textbook Exhibit 8.9 5% coluu Increnental Alloyance for Sampling Error no ano 56 57_$ Nuber (1) (2) (3) Ranked Increnental Increnental Projected Confidence Allowance Errors Factor (1) x (2) Vendor $0 $0 SO Increnental Allowance for Sampling Risk Upper Misstatenent Linit Audit Adjustuent No. 1 $2,503,060 73 5100 Cost of Goods Sold-Grand Prix Touring Bike $378,514 74 5200 Cost of Goods Sold-Phoenix Touring Bike $361,537 75 5300 Cost of Goods Sold-Pike's Peak Mountain Bike $984,346 76 5400 Cost of Goods Sold-Hinalaya Mountain Bike $242,559 77 5500 Cost of Goods Sold-Waistliner Stationary Bike $536,103 78 1530 Factory Equipient 79 To adjust factory equipient and cost of goods sold accounts 80 for repairs erroneously debited to factory equipaent. 81 The allocation is in proportion to the relative arounts 82 of cost of goods sold, as follovs: 83 84 ACCOUNT AMOUNT NUMBER (thousands) 86 Cost of Goods Sold: 87 5100 $34,448 88 5200 $32,903 5300 $89,584 5400 $22,075 5500 $48,790 85 PERCENT 15% 14% 397 10% 21% ON $227,800 = = = = = == = 100% = = = = = == = = = = =