Scenario 17.3 Consider the Following Information

question 67

Multiple Choice

Scenario 17.3
Consider the following information:
The probability of a fire in a factory without a fire prevention program is 0.01. The probability of a fire in a factory with a fire protection program is 0.001. If a fire occurred, the value of the loss would be $300,000. A fire prevention program would cost $80 to run.
-Refer to Scenario 17.3. If the fire protection program were not in place, the insurer would not be willing to ensure the warehouse for any amount less than:

• A) $80.
• B) $300.
• C) $3,000.
• D) $6,000.
• E) $300,000.

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Definitions:

Manufacturing Environment

The setting or conditions within which manufacturing processes take place, including the tools, machinery, and workforce involved.

Period Costs

Period costs are expenses that are not directly tied to the production of goods and are instead charged to the accounting period in which they are incurred, such as selling and administrative expenses.

Insurance Expense

The cost incurred by a business to secure insurance coverage against various risks, recorded as a periodic expense.

Factory Building

A structure purposely designed and constructed for manufacturing operations, housing machinery, equipment, and workers.