Given the Payoff Table Below, Determine the Expected Value and Size

question 121

Multiple Choice

Given the payoff table below, determine the expected value and size of warehouse that would be
Built, given a probability of 0.7 and 0.3 to the high and low demands, respectively.

• A) $8 million, small warehouse
• B) $5 million, medium warehouse
• C) $18.7 million, large warehouse
• D) $12 million, medium warehouse
• E) $22 million, large warehouse

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Definitions:

Variable Costing

An accounting method that only includes variable costs, such as materials and labor, in the cost of goods sold and excludes fixed overhead costs.

Direct Costing

A method in managerial accounting that includes variable costs directly attributable to the production of a product in the cost of goods sold, excluding fixed costs.

Full Costing

An accounting method that includes all direct and indirect costs in the price of a product or service.

Carrying Cost

The total costs associated with holding inventory or assets, including storage, insurance, and taxes.