ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control
Tovar Ltd's budget for a project has a mean cost of 500,000 with a standard deviation of 50,000, assumed normally distributed. Using normal tables, the probability that the cost is below 1.645 standard deviations above the mean is 95%. What is the cost level not expected to be exceeded with 95% probability?
The cost level is 582,250. For a 95% probability of not being exceeded, the cost is the mean plus 1.645 standard deviations, which is 500,000 plus 82,250.
- A582,250Correct
- B550,000
- C600,000
- D417,750
Explanation
Cost = mean + 1.645 x standard deviation = 500,000 + (1.645 x 50,000) = 500,000 + 82,250 = 582,250. 417,750 uses the wrong sign, and 550,000 uses only one standard deviation.
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