Use a Probability Tree to Find Probabilities

question 17

Multiple Choice

Use a probability tree to find probabilities.
-A mid-size company is transitioning to a new ERP system. Consequently, company
Files need to be modified and / or updated so as to be compatible for transfer to the new
System. The company is considering three alternatives to deal with this extra work load.
The difficulty level associated with file modification and transfer will affect the decision,
And initially the company believes there is a 20% chance the file modifications will be
Easy, a 40% chance that they will be moderately difficult and a 40% that they will be
Extremely difficult. The company decides to hire a consultant to review a sample of old
Files and provide her opinion as to whether the modifications required will be extensive
Or minor. Suppose the probabilities associated with her professional opinion are as
Follows: P (Minor | Easy) = 0.80, P (Minor | Moderately Difficult) = 0.50 and P (Minor |
Extremely Difficult) = 0.20. In other words, the chance that she will say the
Modifications required are minor given that the transfer will indeed be easy, moderately
Difficult and extremely difficult are 0.80, 0.50, and 0.20, respectively. What is the
Probability that the consultant will determine that the modifications required are minor?

• A) 0.57
• B) 0.20
• C) 0.32
• D) 0.44
• E) 0.90

Recognize how direct labor hours and machine hours are used as allocation bases in different overhead costing methods.

Understand how departmental overhead rates are determined and used in cost allocation.

Understand the uncertainty and future projection aspects of financial statements.

Grasp the importance and limitations of financial statements in assessing a company's health and future prospects.

---

Definitions:

Collectivism

A cultural value that prioritizes the group's needs over individual desires or accomplishments, often associated with societies that emphasize social harmony and interdependence.

Mood Linkage

Mood linkage refers to the phenomenon where individuals in a social environment tend to share or synchronize their emotional states with others, often subconsciously.

Individualism

A moral, political, or social outlook that emphasizes the moral worth of the individual and the importance of individual self-reliance and independence.

Norms

Understood rules for accepted and expected behavior. Norms prescribe “proper” behavior.