Accounting Decision Support Tools - Assignment

Accounting Decision Support Tools
Assignment item 3
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Question 1
(a) The following steps are involved in the decision making process (Hair, et. al., 2015).
 There are certain set of expectations from a decision which need to be defined from
the outset and also the requsiite outcomes need identification.
 The alternatives that are possible for the decision maker need to be highlighted.
 Each alternative need to be individually analysed thereby identifying the likely
outcomes along with their underlying probability.
 The various outcomes and their underlying risk need to represented in the form of a
payoff matrix.
 The decision making model needs to be applied taking into cognizance the payoff
matrix to reach approrpaite decision.
(b) The decision maker has various strategies that can be implemented given a particular
decision and these are classified as alternatives. Also, there are possible future scenarios
which are beyond the decision maker’s control and are termed as states of nature. The
alternatives and state of nature tend to be linked since for a given state of nature, a particular
alternative may be found suitable. However, given the underlying risk, an alternative needs to
be chosen considering the likelihood of the future states of nature (Hair, et. al., 2015).
(c) Sales records are highlighted below:
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1. Conditional profits matrix is as exhibited below based on the input data provided
(Lieberman, et.al., 2013):
1. Let the fish vendor be an optimist. The respective payoff matrix is indicated below.
In optimist case, maximum payoff would be taken into consideration to decide the number of
quantity purchased each week. The maximum value is $450 and hence, vendor should purchase
30kg.
2. Let the fish vendor be an pessimist. The respective payoff matrix is indicated below.
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In pessimist case, maximum payoff after taking the minimum value would be taken into
consideration to decide the number of quantity purchased each week. The maximum value of all
minimum values is $150 and hence, vendor should purchase 10kg.
3. Let the fish vender had used Laplace criteria. The respective payoff matrix is indicated
below.
In Laplace criteria case, maximum payoff after taking the average value would be taken into
consideration to decide the number of quantity purchased each week. In order to take average, t
has been assumed that the probability of each state of nature is the same or 0.2. The maximum
value is $255 and hence, vendor should purchase 25 kg.
4. Let the fish vender had used criteria of regret. The respective regret matrix is indicated
below.
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