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Chapter 3: Q2BP (page 184)

Sharpe Knife Company expects sales next year to be \(1,550,000 if the economy is strong, \)825,000 if the economy is steady, and $550,000 if the economy is weak. Mr. Sharpe believes there is a 30 percent probability the economy will be strong, a 40 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for the next year?

Short Answer

Expert verified

The expected level of sales for next year is $960,000.

Step by step solution

01

Information given in the question

The following information is provided:

Expected sales when the economy is strong = $1,550,000

Expected sales when the economy is steady = $825,000

Expected sales when the economy is weak = $550,000

Probability of strong economy = 30%

Probability of steady economy = 40%

Probability of weak economy = 30%

02

Expected sales for next year

The expected level ofsales for next year is $960,000.

Expectedsalesfornextyear=鈭�(Expectedsales脳Probability)=($1,550,000脳30%)+($500,000脳40%)=($550,000脳30%)=$465,000+$330,000+$165,000=$96,000

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