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Decision tree

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Decision tree

  • This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • January 3, 2017 at 7:54 am #364899
    mika84
    Member
    • Topics: 99
    • Replies: 149
    • ☆☆☆

    Could you please be so kind to help me with the following.
    Company produces cool systems but 25% of production is defective. Unit contribution is $40/ unit. Refund is $60 if customer finds it defective. Company may take a decision to rework for $30 all the units regardless of weather defective or not. It can not know which of them defective or not in advance.

    January 3, 2017 at 7:59 am #364900
    mika84
    Member
    • Topics: 99
    • Replies: 149
    • ☆☆☆

    Consultant Engineer made a test using 100 systems on a sample. Results are:
    1)Test result :Positive
    system in good condition :52. 5
    system defective:2. 5
    2)Test result:Inconclusive
    system in good condition:15
    system defective:7. 5
    3)Test result:Negative
    system in good condition:7. 5
    system defective: 15

    January 3, 2017 at 8:04 am #364901
    mika84
    Member
    • Topics: 99
    • Replies: 149
    • ☆☆☆

    REQUIRED:USING DECISION TREE, ESTABLISH THE MAXIMUM PRICE (PER SYSTEM)THE COMPANY SHOULD BEWILLING TO PAY FOR USING THE TEST.

    I understand the decision tree on its DO THE TEST line (which is $27. 10). But how did they come to $25 for DONT DO THE TEST?

    January 3, 2017 at 4:18 pm #364930
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    If they don’t do the test, then 25% will be defective which means they will have earned $40 contribution buy then had to pay out $60, and 75% not defective which means earning $40.

    So the expected return is (75% x 40) + (25% x (40 – 60)) = 30 – 5 = 25

    January 3, 2017 at 4:21 pm #364933
    mika84
    Member
    • Topics: 99
    • Replies: 149
    • ☆☆☆

    Sir, is Kaplan’s kit for geniuses? I wouldn’t have got that without your help. Thank you very much, Sir.

    January 3, 2017 at 4:26 pm #364937
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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