CAF-6 · Chapter 1 · Question 3 of 15
Delta Ltd faces claims from 20 customers for faulty products. The company estimates that each claim will be settled in the range of Rs. 40,000 to Rs. 60,000 per claim, with each amount in this range being equally likely. What is the best estimate of the provision required?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 1,000,000
Explanation
When each outcome in a continuous range is equally likely, the mid-point of the range is used. The mid-point between 40,000 and 60,000 is 50,000. 50,000 x 20 customers = Rs. 1,000,000.
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