During the audit of a manufacturing company's inventory, the auditor utilizes a variables sampling plan to estimate the total value of inventory. The recorded book value is $5,000,000. The auditor's sample results indicate a projected misstatement of $150,000 (overstatement). The allowance for sampling risk is calculated at $75,000. Tolerable misstatement is $200,000. Which of the following conclusions is MOST appropriate?

The book value is fairly stated because the projected misstatement ($150,000) is less than tolerable misstatement ($200,000).

The book value is fairly stated because the allowance for sampling risk ($75,000) is less than the projected misstatement.

The auditor should request management to adjust the inventory balance by $150,000, and then conclude the balance is fair.

The recorded balance may be materially misstated because the projected misstatement ($150,000) plus the allowance for sampling risk ($75,000) exceeds tolerable misstatement ($200,000).