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CMA Final · Strategic Cost Management · Decision Making using Probability

Project X yields profit of ₹100 lakh, ₹200 lakh or ₹300 lakh with probabilities 0.2, 0.5 and 0.3 respectively. What is its coefficient of variation?

The coefficient of variation is 33.3%. The expected profit is ₹210 lakh and the variance is 4,900, giving a standard deviation of ₹70 lakh. Dividing the standard deviation by the mean gives one-third, or 33.3%.

  1. A23.3%
  2. B40.0%
  3. C70.0%
  4. D33.3%Correct

Explanation

Mean = 20 + 100 + 90 = 210. Variance = 0.2×110² + 0.5×10² + 0.3×90² = 2,420 + 50 + 2,430 = 4,900, so standard deviation = 70. CV = 70/210 = 33.3%. Quoting 70 as a percentage ignores division by the mean.

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