​You Can Invest $100,000 into Either Project a or B

question 31

Multiple Choice

​You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.7 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.6,in which case it would have a value of $150,000.If it fails,project B's scrap value is $30,000.Which project should you invest in?

• A)​Project A
• B)Project B
• C)Neither of the projects
• D)​You cannot tell from the information presented

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Definitions:

GAAP

Generally Accepted Accounting Principles, the standardized set of accounting rules, practices, and procedures used in preparing financial statements in the U.S.

Product Costing

Product costing involves determining all expenses related to the creation of a product, including materials, labor, and overhead, to establish its total cost.

Absorption Costing

In this accounting method, total costs of manufacturing, from direct materials and labor to both fixed and variable overheads, are completely absorbed into the product’s final cost.

Variable Costing

Variable costing is a cost accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product cost calculations, excluding fixed overhead costs.