Suppose That a Company Has 1,000 Workers, 20 of Whom

question 52

Short Answer

Suppose that a company has 1,000 workers, 20 of whom are thieves. Suppose, too, that a polygraph test is 95 percent accurate. If the company subjects all its employees to a polygraph test, how many thieves will be identified? How many innocent employees will be incorrectly identified as thieves?

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Definitions:

Direct Labor

The labor cost of workers directly involved in the production of goods or services, considered a variable cost.

Applied Factory Overhead

The portion of factory overhead costs that has been assigned to goods produced, often based on a predetermined rate.

Equivalent Units

A concept in cost accounting used to convert partially completed units into an equivalent number of fully completed units during a specific period for costing purposes.

Conversion Costs

The sum of labor and overhead costs that are necessary to convert raw materials into finished goods.