Question

In which of the following situations will monetary-unit sampling be more effective and efficient than ratio estimation?

A. The population has a low degree of variability in monetary amount.
B. The population is expected to contain few differences between the recorded amount and the actual amount.
C. The population contains a large number of differences between the recorded amount and the actual amount.
D. The population has a high degree of variability in monetary amount.

Answer 1

Monetary-unit sampling is more effective when few errors exist between recorded and actual amounts, making choice B the scenario where this method excels.

Step-by-step explanation:

Monetary-unit sampling will be more effective and efficient than ratio estimation in the situation B. The population is expected to contain few differences between the recorded amount and the actual amount. This sampling method is advantageous when errors are expected to be minimal because it tends to provide a reasonable level of precision without requiring a large sample size.

In contrast, ratio estimation would be more appropriate for situation D, where the population has a high degree of variability in monetary amount, as it allows for estimation of the total dollar amount overstatement or understatement when errors are proportional to the size of the items.