An Auditor Wishes to Estimate Inventory Shrinkage by Weighing a Sample

question 14

Multiple Choice

An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items.From experience,the auditor knows that a few specific items are subject to unusually large amounts of shrinkage.In using statistical sampling,the auditor's best course of action is to:

• A)Eliminate any of the items known to be subject to unusually large amounts of shrinkage.
• B)Increase the sample size to lessen the effect of the items subject to unusually large amounts of shrinkage.
• C)Stratify the inventory population so that items subject to unusually large amounts of shrinkage are reviewed separately.
• D)Continue to draw new samples until a sample is drawn which includes none of the items known to be subject to large amounts of shrinkage.

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Definitions:

Accounting Profit

The total revenue of a business minus the explicit costs, representing the financial gain on its income statement.

Economic Cost

The total cost of choosing one action over another, including both the costs incurred and the opportunity costs of forgone alternatives.

Financial Capital

Refers to the funds provided by lenders (and investors) to businesses to purchase real capital.

Machinery

Equipment and devices that perform specific tasks in industries, contributing to production processes.