Rome,CPA,is examining the internal control of Smack,Inc.Rome has established a risk of overreliance of 10%,an expected population deviation rate of 1%,and a tolerable rate of deviation of 5%. Ignore your answer to question 85.Assume that a sample of 100 items was examined and 5 deviations were noted.What is the upper limit rate of deviation?
A) 5.0 percent.
B) 9.1 percent.
C) 10.0 percent.
D) 10.3 percent.

Question

Quizplus · Accepted Answer

To calculate the upper limit rate of deviation, we need to use the formula:
Upper limit rate of deviation = sample deviation rate + (reliability factor x allowance for sampling risk)
The sample deviation rate is calculated as 5/100 = 5%.
The reliability factor can be found using the table of the normal distribution for a one-tailed test, where the risk of overreliance is 10%. The closest value is 1.28.
The allowance for sampling risk is calculated as 1.65 x square root [(1% x 99) / 100] = 0.06 (rounded to two decimal places).
Thus, the upper limit rate of deviation = 5% + (1.28 x 0.06) = 9.08% (rounded to two decimal places). 
Therefore, the best choice is B as it is the closest to the calculated value of the upper limit rate of deviation.

Rome,CPA,is Examining the Internal Control of Smack,Inc