If a company being audited fails this test what is the

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Reference no: EM13605588

An accounting 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. The firm has devised a new accounting test for which it believes the following probabilities hold:

P(company will pass test | no shortage) = .90

P(company will pass test | small shortage) = .50

P(company will pass test | large shortage) = .20

a. If a company being audited fails this test, what is the probability of a large or small inventory shortage?

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

Reference no: EM13605588

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