Your client has three locations. You visit each to test the perpetual inventory records. You take a sample at each and obtain count data and check prices and extensions. You also test 100% all items over SI0,000. You calculate results for each sample, including all items tested 100%, using ratio estimation. A summary of the results is as follows:

Required :

a. Explain how the results of those sample items that were tested on a 100% basis have been incorporated in the summary of results above.

b. Calculate the point estimate of the population error and the confidence interval at a 95% confidence level.

c. Explain the meaning of the negative number in the lower confidence limit.

d. Assume you are willing to accept a \($55,000\) error in the total inventory with a Beta risk of 5%. What is the minimum acceptable adjustment to the client’s recorded value you would be willing to accept?

e. Describe a different way the population could have been subdivided to end up with six strata. (The present method was to use two strata for each location.) What are the likely advantages and disadvantages of your stratification design?

Transcribed Image Text:

Location Location Location A B C Point estimate of the population errors Standard error of the estimate 10,643 9,887 -18,012 43,119 14,463 8,794