Exhibit 9-2 a Customer Has Approached a Local Credit Union for a for a $20,000

question 1

Essay

Exhibit 9-2
A customer has approached a local credit union for a $20,000 1-year loan at a 10% interest rate. If the credit union does not approve the loan application, the $20,000 will be invested in bonds that earn a 6% annual return. Without additional information, the credit union believes that there is a 5% chance that this customer will default on the loan, assuming that the loan is approved. If the customer defaults on the loan, the credit union will lose the $20,000.
-Refer to Exhibit 9-2.Suppose that an actual (not perfectly reliable)credit report has the following characteristics based on historical data; in cases where the customer did not default on the approved loan,the probability of receiving a favorable recommendation on the basis of the credit investigation was 80%,while in cases where the customer defaulted on the approved loan,the probability of receiving a favorable recommendation on the basis of the credit investigation was 25%.Given this information,what are the posterior probabilities that default will and will not occur,given the credit report

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Definitions:

Job Order Costing System

An accounting method that tracks manufacturing costs individually for each job, suitable for customized orders or projects.

Actual Overhead Costs

The real costs incurred from overhead activities, as opposed to budgeted or estimated overhead costs, including utilities, rent, and insurance.

Finished Goods

Items that are fully manufactured and available for sale to consumers.

Predetermined Overhead Rate

A projected cost per activity unit utilized for distributing manufacturing overhead expenses across products.