Budgeting in uncertainty is challenging. The decisions made by budget managers a
ID: 2673011 • Letter: B
Question
Budgeting in uncertainty is challenging. The decisions made by budget managers affect the direction and future of every company. Having a thorough understanding of the components of capital budgeting is essential to developing an appropriate budget.Scenario 1
Salary
Probability
$36,000
0.30
$41,000
0.60
$43,000
0.10
Scenario 2
Salary
Probability
$36,000
0.50
$41,000
0.25
$43,000
0.25
Scenario 3
Salary
Probability
$36,000
0.10
$41,000
0.20
$43,000
0.70
Using the data above, answer the following questions:
Calculate the weighted average of the salary for each scenario. Show your work.
Calculate the weighted average of the salary for each scenario that the budget manager would need for a monthly budget. Show your work.
Which scenario produces the lowest salary? Show your work.
Which scenario produces the highest salary? Show your work.
Which scenario produces the salary that is "in the middle"? Show your work.
Which scenario is the most fiscally conservative? Explain your answer.
Which scenario is the least fiscally conservative? Explain your answer.
How does changing the weight impact the cost of the employee to the budget manager? Explain your answer.
Given an environment with high unemployment, which scenario do you think the company should use? Explain your answer.
Given an environment with low unemployment, which scenario do you think the company should use? Explain your answer.
Explanation / Answer
Calculate the weighted average of the salary for each scenario. Show your work.
Ans:
Scenario 1: 36000x0.3 + 41000x0.6+ 43000x0.1= 39700
Scenario 2: 36000x0.5 + 41000x0.25+ 43000x0.25= 39000
Scenario 3: 36000x0.1 + 41000x0.2+ 43000x0.7= 41900
Calculate the weighted average of the salary for each scenario that the budget manager would need for a monthly budget. Show your work.
Ans:
Scenario 1: 39700/12= 3308.3
Scenario 2: 39000/12= 3250
Scenario 3: 41900/12= 3491.7
Which scenario produces the lowest salary? Show your work.
Scenario 2, as it has got the least weighted average salary.
Which scenario produces the highest salary? Show your work.
Scenario 3, as it has got the maximum weighted average salary.
Which scenario produces the salary that is "in the middle"? Show your work.
Scenario 1, as it is in between.
Which scenario is the most fiscally conservative? Explain your answer.
Scenario 2, as it has got the least weighted average salary.
Which scenario is the least fiscally conservative? Explain your answer.
Scenario 3, as it has got the maximum weighted average salary.
How does changing the weight impact the cost of the employee to the budget manager? Explain your answer.
Due to change in weight the weighted average might increase or decrease depending on the weights of the different salaries.
Given an environment with high unemployment, which scenario do you think the company should use? Explain your answer.
Scenario 2, as it is least and the demand for job is more due to higher unemployment.
Given an environment with low unemployment, which scenario do you think the company should use? Explain your answer.
Scenario 3, as it is maximum and the demand for job is less due to less unemployment.
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