You are doing the audit of Baker Tool’s valuation of inventory. The inventory is made up of 8,000 different kinds of items. The value of different kinds of inventory does not vary enough to justify stratification. You conclude that an error of \($75,000\) would be material, and you expect a point estimate of approximately \($25,000\) and a standard deviation of \($75\) using ratio estimation. You decide that you are willing to take a 10% Beta risk of accepting a population that is materially misstated and a 75% Alpha risk for rejecting a population that is not materially misstated.

Required:

a. Calculate the preliminary sample size for ratio estimation. What would the sample size be for difference estimation if the estimated standard deviation and point estimate were the same?

b. Assume you select a sample size of 200 and obtain the following results, which include 53 errors:

The total recorded value of the population is \($730,625.00\). The sum of the errors squared is \($830,050\). Other relevant information is

Calculate the confidence limits for ratio and difference estimation, c.Is the population acceptable? Explain what you should do at this point.

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Item 1 value $ 125.00 2 3 n = 200 Totals Book Audit value Recorded value squared $ 124.00 $ 15,625.00 34.70 35.00 1,204.09 417.00 401.09 173,889.00 64.30 64.30 4,134.49 $27,432.00 $26,674.00 $1,928.750.00