A Firm Wishes to Buy Fire Insurance at Its Plant

question 92

Multiple Choice

A firm wishes to buy fire insurance at its plant.The loss in case of fire is estimated to be $50 million and the probability of occurrence is 0.5% over the next year.If claims are paid at the end of the year and the annual risk-free rate is 10%,compute the insurance premium.

• A)$250,303
• B)$236,109
• C)$245,368
• D)$227,273
• E)$260,154

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Definitions:

Labour Efficiency Variance

A cost management tool used to measure the difference between the actual labor hours used and the standard labor hours expected to produce a certain level of output.

Direct Labour Standard

A benchmark for the amount of work (measured in labor hours or costs) expected to produce a certain quantity of goods.

Uncontrollable Costs

Costs that cannot be influenced or controlled by a manager under normal circumstances.

Work In Process Inventory Account

This is an account in the ledger that tracks the cost of inventory not yet completed, including materials, labor, and overhead costs.