An internal control policy for Rhonda\'s Online Fashion Accessoriesrequires a qu

Question

An internal control policy for Rhonda's Online Fashion Accessoriesrequires a quality assurance check before a shipment is made. The tolerable exception rate for this internal control is0.05. During an audit, 500 shipping records were sampled froma population of 5,000 shipping records, and 12 were found thatviolated the internal control.
A. Calculate the upper bound for a 95% one sided confidenceinterval estimate for the rate of noncompliance.
B. Based on the results for (A) what should the auditorconclude.
A. Calculate the upper bound for a 95% one sided confidenceinterval estimate for the rate of noncompliance.
B. Based on the results for (A) what should the auditorconclude.

Explanation / Answer

For a one-sided 95% interval we use z* = 1.645. Note that 12/500 = 0.024 ME = 1.645*[(0.024)(0.976)/500] = 0.011 0.024 + 0.011 = 0.035 Since 0.035 < 0.05, this is tolerable.

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