Page 292 - BA2 Integrated Workbook STUDENT 2018

Fundamentals of Management Accounting

CHAPTER 12 – RISK 2: PROBABILITY

12.1 There are different types of probabilities.

Use some of the following words to complete the sentences below.

Expected Exact Subjective

Historical Objective Empirical

pricing
__________ probabilities can be calculated from samples of past observations.

__________ probabilities are based on judgement.

__________ probabilities can be applied to the population of outcomes for a
certain event.

12.2 The production manager of a pharmaceutical company is concerned that the
ageing machinery on its production line is causing losses by putting too much on
average of a certain product into each container. Analysis shows that the mean
amount being put into a container is 499.5 ml, with a standard deviation of 0.8 ml.

Adopting a normal distribution, what percentage of containers will contain
more than the notional contents of 500 ml?

12.3 PQR is considering launching a new product. Initial estimates have suggested
that the profit from the new product could be $50,000, $22,000 or a loss of
$10,000 depending on market conditions.

It is estimated that the probability of the best and worst outcomes are both 20%.

Calculate the expected profit. $_________

12.4 A company is analysing its finance staff by location and qualification.

The 111 finance employees can be classified by their work location (A, B or C)
and by their professional qualifications (qualified or not qualified).

79 of the finance staff are qualified. Of the 37 who work in location A 26 are
qualified. Location C employs 36 finance staff 24 of which are qualified.

What is the probability that a randomly selected unqualified employee will
work in location A or B? _________%

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