How are reserves calculated according to Ralph's method?

The correct answer involves calculating reserves using Ralph's method, which is designed to ensure that the reserves account adequately reflects potential losses while incorporating a margin for safety. In this method, the accumulative loss over 12 months is divided by 12 to find the average monthly loss.

However, the additional factor of multiplying by 110% is crucial, as it effectively adds a conservative buffer to account for fluctuations or unexpected losses that may exceed the average trend observed. This conservative approach allows the company to be better prepared for future claims, ensuring that they have sufficient reserves to cover potential liabilities arising from their fleet operations.

Dividing this adjusted average by the total fleet ensures that the calculation is proportionate to the actual number of vehicles being assessed. Thus, the method reflects a prudent strategy in financial management within the context of risk assessment and reserve calculations. Other options do not incorporate this percentage buffer or lack the specific methodology proposed by Ralph's approach, which emphasizes a careful evaluation of cumulative losses.