Assume That You Are the Auditor in Charge of Designing

question 46

Essay

Assume that you are the auditor in charge of designing a sampling plan to evaluate the cost of the year-end inventory balance for BCS,Inc.The company uses FIFO costing to determine the cost of its inventory.Additional information is provided below.The total amount of inventory is $10,800,000.The desired level of assurance is 90% (10% risk of incorrect acceptance).The ratio of estimated misstatement to tolerable misstatement is 0.00.The confidence factor is 2.31 from the table in the chapter.Tolerable misstatement is $1,000,000.A partial list of inventory is given below: $$\begin{array} { | l | r | r | } \hline \text { Inventory } &{ \text { Cost } } & \begin{array} { l } \text { Cumulative } \\\text { item }\end{array} \\\hline 001 & 4,821 & 4,821 \\\hline 002 & 23,822 & 28,643 \\\hline 003 & 128,119 & 156,762 \\\hline 004 & 36,707 & 193,469 \\\hline 005 & 13,289 & 206,758 \\\hline 006 & 39,385 & 246,143 \\\hline 007 & 95,331 & 341,474 \\\hline 008 & 4,871 & 346,345 \\\hline 009 & 70,321 & 416,666 \\\hline 010 & 4,841 & 421,507 \\\hline 011 & 59,773 & 481,280 \\\hline 012 & 3,763 & 485,043 \\\hline 013 & 61,884 & 546,927 \\\hline 014 & 33,794 & 580,721 \\\hline 015 & 4,971 & 585,692 \\\hline 016 & 48,733 & 634,425 \\\hline 017 & 49,322 & 683,747 \\\hline 018 & 3,748 & 687,495 \\\hline 019 & 29,597 & 717,092 \\\hline 020 & 6,979 & 724,071 \\\hline \ldots & \ldots & \\\hline\end{array}$$

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Definitions:

Edgeworth Box

A visual representation used in economics to show the distribution of resources and the efficiency of trading between two individuals.

Efficiency

Describes the extent to which time, effort, or cost is well-used for the intended task or purpose, often aiming for the maximum output from a given set of resources.

Indifference Curves

Graphical representations in economics showing combinations of goods among which a consumer is indifferent, meaning they have no preference for one combination over another.

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.