The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart.The finished product sells for $35 with a variable cost per unit of $21.The company has operating costs of $1,050,000.What is the probability of the firm having operating losses if the firm has a standard deviation of 4,000 units and the firm expects to sell 80,000 almanacs? (A normal distribution table - Table V - must accompany this problem)
A)10.56%
B)11.12%
C)14.92%
D)13.57%

Question

Quizplus · Accepted Answer

The probability of the firm having operating losses is 10.56%. This is because the expected profit is $1,050,000 - (21 * 80,000) = $210,000. The standard deviation of profit is 4,000 * $14 = $56,000. The z-score of the expected profit is 210,000 / 56,000 = 3.75. The probability of the firm having operating losses is the area under the normal distribution curve to the left of the z-score of 3.75, which is 10.56%.

The Foggy Futures Weather Network Offers an Annual Almanac for Sale