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    Kuis Akman 2 - 72 - Esay

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    muhammadmakhrojal
    Planet Motors manufactures industrial motors and is worried about increased competition from a global manufacturer entering its customer market. This poses a risk of losing $76 million in annual sales revenue, with a 50% likelihood. Planet identified three risk response alternatives: A) Sign long-term contracts, B) Invest in a new quality program, C) Take no action. The inherent risk is calculated as $38 million. The residual risk for each alternative is: A) $16.5 million, B) $6 million, C) $38 million (no change).

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    Kuis Akman 2 - 72 - Esay

    Uploaded by

    muhammadmakhrojal
    54 views2 pages
    Planet Motors manufactures industrial motors and is worried about increased competition from a global manufacturer entering its customer market. This poses a risk of losing $76 million in annual sales revenue, with a 50% likelihood. Planet identified three risk response alternatives: A) Sign long-term contracts, B) Invest in a new quality program, C) Take no action. The inherent risk is calculated as $38 million. The residual risk for each alternative is: A) $16.5 million, B) $6 million, C) $38 million (no change).

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    Kuis Akman 2_72_esay

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    Planet Motors manufactures industrial motors and is worried about increased competition from a global manufacturer entering its customer market. This poses a risk of losing $76 million in annual sales revenue, with a 50% likelihood. Planet identified three risk response alternatives: A) Sign long-term contracts, B) Invest in a new quality program, C) Take no action. The inherent risk is calculated as $38 million. The residual risk for each alternative is: A) $16.5 million, B) $6 million, C) $38 million (no change).

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    54 views2 pages

    Kuis Akman 2 - 72 - Esay

    Uploaded by

    muhammadmakhrojal
    Planet Motors manufactures industrial motors and is worried about increased competition from a global manufacturer entering its customer market. This poses a risk of losing $76 million in annual sales revenue, with a 50% likelihood. Planet identified three risk response alternatives: A) Sign long-term contracts, B) Invest in a new quality program, C) Take no action. The inherent risk is calculated as $38 million. The residual risk for each alternative is: A) $16.5 million, B) $6 million, C) $38 million (no change).

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    of 2

    2

    COURSES GROUPS RESOURCES MORE

    Your assessment has been submitted.

    Management Acctg Kls 7-2: Section 1 Tests/Quizzes

    Kuis Essay Ch 13 Submissions Enabled Grade: N/A

    My Submissions Test/Quiz Comments

    Debbie Intansari Rachmat Submission 1

    Pending Review Question 1


    ​Planet Motors manufactures general and special purpose industrial motors. Planet's management is worried
    about increasing competition in its industry as a global industrial motor manufacturer has recently shown a
    keen interest in entering the same customer market as served by Planet. The management is most concerned
    about the fact that it may lose a significant amount of sales revenue should this competitor make an entry
    into Planet's market. A description of Planet's top risk, an inherent risk assessment, three risk response
    alternatives, and a residual risk assessment for each response alternative is provided in the chart given
    below.

    Inherent Risk Risk Response Residual Risk

    Impact Impact
    Likelihood (on lost Alternatives Likelihood (on lost
    Risk revenues) revenues)

    A global industrial 50% $76,000,000 A—Sign long-term 25% $66,000,000


    sales contracts with its
    motor manufacturer has
    three biggest customers
    recently shown a keen before the competitor
    interest in entering the enters the market
    same customer market
    served by Planet; it
    may significantly
    impactPlanet's annual
    sales revenue.

    B—Invest in a new 40% $15,000,000


    quality program with
    the aim of significantly
    increasing the
    performance and
    quality of its motors so
    that the new entrant
    could not match with its
    quality

    C—Take no action in 50% $76,000,000


    response to this new
    threat

    It is estimated by Planet's management thatthat the incremental cost of implementing risk response A is
    $15,000,000 and the incremental cost of implementing risk response B is $14,000,000.

    Required:

    A.) Calculate the inherent risk for Planet Motors.


    B.) Calculate the residual risk for Planet Motors associated with each of the three risk response alternatives
    A, B, and C.
    A.) INHERENT RISK FOR PLANET MOTORS
    Inherent risk = impact on lost revenues x likelihood of risk
    = $76.000.000 x 50%
    = $38.000.000

    B.) RESIDUAL RISK FOR EACH OF THE RISK RESPONSE


    Risk Response A.
    Residual risk = impact on lost revenues x likelihood of risk
    = $66.000.000 x 25%
    = $16.500.000

    Risk Response B
    Residual risk = impact on lost revenues x likelihood of risk
    = $15.000.000 x 40%
    = $6.000.000

    Risk Response C
    Residual risk = impact on lost revenues x likelihood of risk
    = $76.000.000 x 50%
    = $38.000.000

    Back to assessments

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