Case Study XXXXXXXXXXMt. Hood furniture located at the end of Chapter 13 (Mt. Hood Furniture—PPS sampling problem) You have been assigned the task of testing the accuracy of the final inventory...

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  1. Case Study (13-36) Mt. Hood furniture located at the end of Chapter 13
    (Mt. Hood Furniture—PPS sampling problem) You have been assigned the task of testing the accuracy of the final inventory compilation for Mt. Hood Furniture. You may assume that you have separately observed the inventory and that you are satisfied that the inventory was accurately counted. However, you need to test that quantities were accurately transcribed to the final accumulation and valuation of inventory and that the inventory is correctly priced and accumulated. The table beginning on page 617 of textbook (note page number could vary if using ebook) presents the audited values associated with Mt. Hood’s pricing and accumulation of all items in inventory.
    The book values will be given to you by your professor. You may assume that you have performed the tests to determine the proper pricing for raw materials, work in process, and finished goods. The student should understand that the auditor will normally obtain this information only for the items included in the sample.





    1. Identify the audit objectives that are accomplished by this test.

    2. Determine sample size based on the following audit judgments.





  1. Tolerable misstatement is assessed at $325,000.

  2. The risk of incorrect acceptance is assessed at 37%.

  3. Anticipated misstatement is assessed at $100,000.



  1. Develop a scenario that is consistent with setting the risk of incorrect acceptance at 37 %.

  2. Select a PPS sample of the above inventory population using the sample size determined in (2) above.

  3. Explain the tests that you would perform to test the correctness of pricing of raw materials, work in progress, and finished goods.

  4. Determine the amount of projected population misstatement based on your sample.

  5. Considering your quantitative and qualitative results, develop a statistical conclusion and an audit conclusion based on your sample.

Answered 1 days AfterMay 02, 2021

Answer To: Case Study XXXXXXXXXXMt. Hood furniture located at the end of Chapter 13 (Mt. Hood Furniture—PPS...

Harshit answered on May 04 2021
133 Votes
Solution to Question 1
The audit objective of Inventory checking is mentioned below
To verifying Physical
Existence: As mentioned several times, the main purpose of the checklist is to verify financial records through physical inventory. In the inventory audit process, the auditor will supervise the inventory process and verify whether it is effectively implemented. A sample element used to check whether the physical data matches your financial records, and vice versa.
To examining the Accuracy of the Process: The auditor checks whether the inventory system is operating normally. For this, they use statistical sampling methods.
To ownership Rights: The checklist should also be used to determine whether the company-registered checklist actually belongs to the company.
To evaluation of Realizable Value: One of the purposes of inventory is to verify that the inventory is correctly recorded in the general ledger. For damaged and defective goods, the auditor checks whether the reservation is booked, but at the cost of implementation.
Solution to Question 2
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