Chen Lee is examining whether to investigate a labor efficiency variance in his project management processes. It will cost $4,800 to undertake the investigation and another $14,400 to correct the processes if found faulty. If the processes are faulty and Chen failed to make the investigation, labor costs from the various inefficiencies are expected to amount to $26,400. Chen would be indifferent between investigating and not investigating the variance if the probability of faulty processes is
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Ответ:
The correct answer is $400,000 (increase).
Explanation:
According to the scenario, computation of the given data are as follows:
Stock issued = 200,000 shares
Fair value = $6
Time period = 3 years
So, we can calculate the effect on earnings by using following formula:
Effects on earning = Stock issued × Fair value ÷ Time period
By putting the value, we get
Effects on earning = 200,000 × 6 ÷ 3
= $400,000 (Increase)