Answer to Question #85318 in Statistics and Probability for Janet

Question

KPMG, an auditing firm has noticed that of the companies it audits, 85% show no inventory shortages, 10% show small inventory shortages and 5% show large inventory shortages. KK firm has devised a new accounting test for which it believes the following probabilities hold:

P (Company will pass test/no shortage) = 0.90
P (Company will pass test/small shortage) = 0.50
P (Company will pass test/large shortage) = 0.20

Required:
i) Determine the probability if a company being audited fails this test has large or small inventory shortage.

ii) If a company being audited passes this test, what is the probability of no inventory shortage?

Answer 1

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