Situation 33-1 Suppose That the Equation That Represents the Expected

question 43

Multiple Choice

Situation 33-1 Suppose that the equation that represents the expected benefits of burglary for a given prospective criminal is as follows:
EB = Ps x Loot
The criminal's cost equation is as follows:
EC = [Pp x (I + F) ] +  AC
Where:
EB is the expected benefits of burglary
Ps is the probability of successfully burglarizing a house
Loot is the dollar take from the burglary  
EC is the expected costs of burglary
Pp is the probability of imprisonment
I is the income the criminal gives up if caught and imprisoned
F is the dollar value the criminal puts on freedom
AC is the anguish cost of committing a burglary
Refer to Situation 33-1.  If the prospective criminal sets the following values:
Ps = 65 percent
Loot = $20,000
Pp = 20 percent
I = $30,000
F = $15,000
AC = $5,000
The prospective criminal's expected benefit from committing the burglary is ______________ and his expected cost of committing the burglary is _______________.  Economic theory tells us that under these circumstances, the prospective criminal ______________ commit the burglary.

• A)$13,000; $14,000; will
• B)$13,000; $14,000; will not
• C)$6,667; $50,000; will not
• D)$57,500; $50,000; will

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Definitions:

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and then subtracting the cost of goods sold.

Gross Profit

The difference between sales and the cost of goods sold before deducting overhead, payroll, taxation, and interest payments.

FIFO Inventory

Stands for "First-In, First-Out", an inventory valuation method where the oldest inventory items are recorded as sold first.

Perpetual Inventory System

This inventory accounting technique instantly logs the acquisition or sale of inventory by utilizing computerized point-of-sale systems along with enterprise asset management software.