Alice Rathermel audited LoHo Company's inventory using sampling.She examined 120 items from an inventory compilation list and discovered net overstatement of $480.The audited items had a book (recorded)value of $48,000.There were 1,200 inventory items listed,and the total recorded inventory amount was $490,000.What is the projected misstatement using mean-per-unit estimation?
A) $480.
B) $576,000.
C) $10,000.
D) $480,000.

Question

Quizplus · Accepted Answer

The mean-per-unit estimation projects the misstatement by calculating the average misstatement per unit and then applying it to the entire population. The net overstatement per unit is $480/120 = $4. The projected misstatement for 1,200 items is 1,200 * $4 = $4,800. However, since the total recorded inventory amount is $490,000 and the audited items had a book value of $48,000, the correct projection is ($490,000/$48,000) * $480 = $10,000.

Alice Rathermel Audited LoHo Company's Inventory Using Sampling