ExpertEasy2 marksShort Answer
ACCA · Question 09 · Data Analysis and Statistical Techniques
An agricultural firm is deciding whether to plant a new crop. The potential profits depend on weather conditions:
- Good weather (30% probability): $100,000 profit
- Average weather (50% probability): $150,000 profit
- Poor weather (20% probability): $80,000 profit
Calculate the expected value of the profit. (Enter numbers only)
An agricultural firm is deciding whether to plant a new crop. The potential profits depend on weather conditions:
- Good weather (30% probability): $100,000 profit
- Average weather (50% probability): $150,000 profit
- Poor weather (20% probability): $80,000 profit
Calculate the expected value of the profit. (Enter numbers only)
How to approach this question
Multiply each outcome by its probability and sum the results.
Full Answer
Expected Value = Σ(Probability × Outcome)
EV = (0.30 × $100,000) + (0.50 × $150,000) + (0.20 × $80,000)
EV = $30,000 + $75,000 + $16,000 = $121,000.
Common mistakes
Simply averaging the three profit figures without weighting them by probability.
Practice the full ACCA MA — Management Accounting Practice Exam 4
38 questions · hints · full answers · grading
More questions from this exam
Q01A global environmental NGO is planning its resource allocation for the next five years to combat ...EasyQ02A fintech startup is analyzing data to determine the viability of launching a new micro-lending a...EasyQ03A public water utility incurs a base maintenance cost of $10,000 per month for up to 5,000 gallon...MediumQ04An agricultural cooperative produces organic fertilizer. Which of the following costs would be cl...MediumQ05A cross-border logistics company uses an additive time series model to forecast shipping volumes....Medium