Decision tree analysis festus temperature control case study

Assignment Help Accounting Basics
Reference no: EM13917165

Decision Tree Analysis Festus Temperature Controls Case Study

NOTE: Only work done using Palisades PrecisionTree Software will be acceptable

Introduction:
Decision trees are superb tools for helping you to select between several courses of action. They provide a highly effective structure in which you can lay out options and investigate the possible outcomes of choosing those options. They also help you to form a balanced picture of the risks and rewards associated with each possible course of action.

Key Points for Decision Trees
Decision trees provide an effective method of decision making because they:
1. Visibly lay out the problem so that all options can be tested;
2. Allow you to fully analyze possible consequences of making any given decision;
3. Provide a framework to quantify the values of outcomes and the probabilities of achieving them; and,
4. Help you to make the best decisions on the basis of current information and best guesses.

As with all decision making methods, decision tree analysis should be used in conjunction with common sense decision trees are just one important part of your decision making tool kit. In this case study you will be using the information from below to create a PrecisionTree 1 for Festus Temperature Controls Case Study. They need your help to first display the various options open to them, then to analyze these options and to recommend a course of action. Read the information carefully. It contains all of the information that you need to create your PrecisionTree. The analysis is, of course, up to you. But do it completely.

Remember the output for this case study is to be in the form of a mini report similar to the other reports that you have produced. Thus you will have an executive summary (200 words), the body of the report with the PrecisionTree (copied from Excel), and the concluding statement (75 words) and citation section. The mini report should be between 5 to 9 pages in length.

1 Notice that PrecisionTree is one word with the p and the t capitalized.

Copyright R&A 2015

Page 1

Festus Temperature Controls Case Study
Randy Cliff, manager of Festus (Missouri) Temperature Controls Company has a good problem. His company has been experiencing unexpected growth since 2009 and now has some extra plant capacity that he needs to use. The company is considering a short manufacturing run for either two types of new products, a temperature sensor or a pressure sensor. Randys chief sales manager has assured him that either product will be successful in the marketplace, however Randy is not sure that his team will be able to develop them successfully in the short time allocated.

The sales manager believes that there is a probability of 65% that the potential revenue of $1.5 million from selling the temperature sensor, and probability of 35% that the potential revenue of $750,000 from selling the pressure sensor. Both of these amounts are net of the production costs, but do not include the development costs for either.
If the development is unsuccessful for a product, then there will be no sales, and the development cost will be totally lost. Randy estimates that the development cost for the temperature sensor would be $155,000 and for the pressure sensor the cost will be $26,000. Randy has asked you to help his senior management team figure out the pros and cons of these several options to their product line. To do this you will create a PrecisionTree, analyze the tree using the maximax, maximin, and the other decision-making techniques presented to you during week nine chat, and help the company decide which way to proceed based on the expected
monetary value and good old common sense.

Calculating The Value of Uncertain Outcome Nodes Where you are calculating the value of uncertain outcomes (probability nodes on the diagram), do this by multiplying the value of the outcomes by their probability. The total for that node of the tree is the total of these values.

For instance, if the probability of an outcome (positive or negative) is 35% and the value for that node is $200,000 then you multiply $200,000 times .35 and the value of this node is: $70,000. So this is your last case study. One that I hope will provide you with a real world experience in decision-making.

Reference no: EM13917165

Questions Cloud

Operating expense budget : The operating expense budget is based on the.
Calculate the marginal cost function : Draw an isoquant/isocost graph that illustrates the short-run input choice from part a, and the cost-minimizing long-run input choice in part b - Calculate the marginal cost function (MC), the average variable cost function (AVC), and the average ..
Cmr refrigeration makes a compressor part : CMR Refrigeration makes a compressor part that it sells for $35 each. The cost of producing 30,000 parts in the prior year is as follows:
Find the range variance and standard deviation : Six different second-year medical students at Bellevue Hospital measured the blood pressure of the same person. The systolic readings (in mmHg) are listed below. Find the range, variance, and standard deviation for the given sample data
Decision tree analysis festus temperature control case study : Decision trees are superb tools for helping you to select between several courses of action. They provide a highly effective structure in which you can lay out options and investigate the possible outcomes of choosing those options. They also help..
Raw materials budgeted to be purchased : The raw materials budgeted to be purchased for the period is equal to.
Calculate the exponential expression : let X be exponentially distributed with rate λX. Given X = u, let Y be a Poisson random variable of rate u. (a) Calculate the expression for fX|Y (u|0) in closed form and draw it as a function of u (hint: try not to calculate any integrals).
Company recognizes an expense and a liability : The company's accrued liabilities include accrued wages, self-insurance, accrued taxes, accrued utilities, and accrued interest etc. The company recognizes an expense and a liability for financial reporting for the accrued liabilities.
Operating budget depends : The operating budget depends on key information developed in the..

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd