Terri Sampson is auditing the accounts receivable of Bikkely Ltd for the year ended 30th June 2020. Bikkely's accounts receivable balance was recorded at $8,500,000 and comprised more than 2,000 customer accounts. However Bikkely's 10 largest customer balances comprised a high percentage of the recoded accounts receivable (more than $1,500,000 or 30%). As a result, Terri is considering using Dollar Unit Sampling.

Based on prior audits and other judgments, Terri has established the following parameters:

Risk of Incorrect Acceptance 10%

Tolerable Error $335,000

Expected Error $180,000

Required:

1.Determine the required sample size that would be used by Terri in the audit of Bikkely Ltd. Explain how you arrived at this sample size

2.Calculate the sampling interval - show all workings.

3.Explain the concept of tolerable error in dollar unit sampling