A company uses two major material inputs in its production. To prepare itsmanufacturing operations budget, the company has to project the cost changes of thesematerial inputs. The cost changes are independent of one another. The purchasingdepartment provides the following probabilities associated with projected cost changes.Cost ChangeMaterial 1Material 23% increase0.30.55% increase0.50.410% increase0.20.1The probability that there will be a 3% increase in the cost of both Material 1 and Material2 is (E)a. 15%O b. 20%O c. 80%O d. 40%

In this question, we have to calculate the probability of the cost of material1 and material 2

Answered: A company uses two major material…

Business

Accounting

A company uses two major material inputs in its production.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

A company uses two major material inputs in its production. To prepare its
manufacturing operations budget, the company has to project the cost changes of these
material inputs. The cost changes are independent of one another. The purchasing
department provides the following probabilities associated with projected cost changes.
Cost Change
Material 1
Material 2
3% increase
0.3
0.5
5% increase
0.5
0.4
10% increase
0.2
0.1
The probability that there will be a 3% increase in the cost of both Material 1 and Material
2 is (E)
a. 15%
O b. 20%
O c. 80%
O d. 40%

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