Suppose a Project Is Subject to the Following Risk Events

question 74

Multiple Choice

Suppose a project is subject to the following risk events (each with a given probability of occurring and a cost associated with that occurrence) : $$\begin{array} { l c c } \text { Event } & \text { Probability } & \text { Cost(\$000s) } \\\text { I } & .2 & 53 \\\text { II } & .6 & 54 \\\text { III } & .1 & 12 \\\text { IV } & 3 & 21\end{array}$$
Given these, Event _____ should probably get the most attention and Event _____ should probably get the least.

• A) II; IV
• B) III; IV
• C) I; III
• D) I; II
• E) II; III

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Definitions:

Total Variable Cost

The sum of all costs that vary directly with the level of production or output.

Total Fixed Cost

The sum of all costs that remain constant regardless of the level of production or business activity.

Manufacturing Overhead

The sum of all costs associated with the production process that cannot be directly traced to specific products, such as maintenance expenses, factory utilities, and property taxes; it's crucial for calculating the total cost of production.

Relevant Range

The scope of business activity within which the assumptions about fixed and variable costs are valid.