Problem: The recorded inventory balance for Faulk Company was $1,000,000 and comprised 2,500 customer accounts.
Required:
For each of the following independent sets of conditions, determine the appropriate sample size for the audit of Faulk's inventory using classical variables sampling (mean-per-unit estimation). (RIA = risk of incorrect acceptance, RIR = risk of incorrect rejection, TM = tolerable misstatement, EM = expected misstatement, SD = standard deviation.)
a. RIA = 5%, RIR = 5%, TM = $50,000, EM = $20,000, SD = $40.
b. RIA = 10%, RIR = 5%, TM = $50,000, EM = $20,000, SD = $40