CHAPTER 16

MANAGEMENT ACCOUNTING - Solutions Manual

Chapter 17 Application of Quantitative Techniques in Planning, Control and Decision Making - IStandard Costs and Operating Performance Measures Chapter 16

CHAPTER 17APPLICATION OF QUANTITATIVE TECHNIQUES IN PLANNING, CONTROL AND DECISION MAKING - II.Questions1.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.Advantages of Decision Tree Analysis

1.Clarifies the choices, risks, and monetary gains involved in an investment problem.

2.Presents the relevant information more clearly.

3.Combines action choices with different possible events or results of action which are partially affected by chance or other uncontrollable circumstances.

4.Encourages the focus on the relationship between current and future decisions.

5.Utilizes such analytical techniques as present value and discounted cash flow.

6.Considers various alternatives with greater ease.

Weaknesses of Decision Tree Analysis

1.Not all events that can happen can be/are identified.

2.Not all the decisions that must be made on a subject under analysis are listed because choices are usually not restricted to two or three.

3.If a large number of choices is involved, decision tree analysis by hand becomes complicated.

4.Uncertain alternatives are generally treated as if they were discrete, well-defined possibilities.

2.Refer to page 665 of the textbook.

II.Multiple Choice Questions1. A6. C11. B16. B21. B

2. A7. B12. D17. C22. D

3. B8. D13. C18. D23. B

4. B9. A14. B19. D24. B

5. B10. D15. A20. A25. D

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