A Manager Is Attempting to Assess the Probability of a Recession

question 122

Multiple Choice

A manager is attempting to assess the probability of a recession ending in the next six months and its impact on expected profitability.The manager believes there is a 33 percent chance the recession will end in six months and profits will return to $100 million.However,there is a 67 percent chance the recession will not end in six months,resulting in a $7 million loss.The expected profits over the next six months are:

• A) $28.31 million.
• B) $33 million.
• C) $64.69 million.
• D) $−2.31 million.

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Definitions:

Raw Materials Inventory

Stocks of basic materials that are used in the production process before undergoing manufacturing.

Work-in-Process Inventory

This refers to the goods that are in the middle of the manufacturing process but are not yet completed.

Manufacturing Overhead-Control

An account that aggregates all indirect manufacturing costs, used to control and allocate overhead costs during production.

Accounts Receivable

An asset that indicates amounts owed by customers.