MANAGEMENT ACCOUNTING (VOLUME II) - Solutions Manual

CHAPTER 17
APPLICATION OF QUANTITATIVE TECHNIQUES IN
PLANNING, CONTROL AND DECISION MAKING - I
I. Questions
1. a. Decision tree analysis provides a systematic framework for analyzing
a sequence of interrelated decisions which may be made over time.
Decision making is formulated in terms of the consequence of acts,
events and consequences because it is believed that present decisions
affect future profitability. The study and understanding of alternative
scenarios is encouraged with the use of decision tree analysis.
b. dvantages of Decision Tree nalysis
1. !larifies the choices, risks, and monetary gains involved in an
investment problem.
". #resents the relevant information more clearly.
$. !ombines action choices with different possible events or results
of action which are partially affected by chance or other
uncontrollable circumstances.
%. &ncourages the focus on the relationship between current and
future decisions.
'. (tilizes such analytical techniques as present value and
discounted cash flow.
). !onsiders various alternatives with greater ease.
*eaknesses of Decision Tree nalysis
1. +ot all events that can happen can be,are identified.
". +ot all the decisions that must be made on a sub-ect under
analysis are listed because choices are usually not restricted to
two or three.
$. If a large number of choices is involved, decision tree analysis by
hand becomes complicated.
%. (ncertain alternatives are generally treated as if they were
discrete, well.defined possibilities.
". /efer to page ))' of the te0tbook.
II. Multiple Choice Questions
1. ). ! 11. 1 1). 1 "1. 1
17-1
Chapter 17 Application of Quantitative Techniques in Planning, Control and Decision Making - I
". 2. 1 1". D 12. ! "". D
$. 1 3. D 1$. ! 13. D "$. 1
%. 1 4. 1%. 1 14. D "%. 1
'. 1 15. D 1'. "5. "'. D
17-