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. 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.

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Chapter 17 Applicationof Quantitative Techniques inPlanning, Control and Decision Making - I

II. Multiple Choice Questions

1. A 6. C 11. B 16. B 21. B

2. A 7. B 12. D 17. C 22. D
3. B 8. D 13. C 18. D 23. B
4. B 9. A 14. B 19. D 24. B
5. B 10. D 15. A 20. A 25. D

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