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CMA Final · Strategic Cost Management · Decision Making using Probability

A Pune bakery can bake 100 loaves daily. Daily demand is 80 loaves with probability 0.4 and 100 loaves with probability 0.6. What is the expected daily demand?

Expected daily demand is 92 loaves, found by weighting each demand level by its probability: 80 times 0.4 gives 32 and 100 times 0.6 gives 60, totalling 92. Taking a simple average of 90 would wrongly treat both outcomes as equally likely.

  1. A90 loaves
  2. B92 loavesCorrect
  3. C88 loaves
  4. D100 loaves

Explanation

Expected demand = 80 x 0.4 + 100 x 0.6 = 32 + 60 = 92 loaves. The simple average of 90 ignores the unequal probabilities, and 88 reverses the probabilities.

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