Which of the following statements is/are true about choosing a course of action?I). Future cash flows of the potential courses of action must be compared.II). Qualitative factors must be considered.Ill). Nonfinancial quantitative factors do not have to be considered.
Answer(s): B
The selection of the best available solution is the objective of the decision-making process. The choice involves not only comparing the future cash flows of the potential courses of action1 but also considering qualitative and nonfinancial quantitative factors. Qualitative factors include relationships with employees, suppliers, and customers. Nonfinancial quantitative factors include rate of defective output and manufacturing lead time.
Simulation, a widely used technique in decision modeling, is a
Answer(s): A
Computer simulation is used when an optimization model cannot be developed, e.g., because the variables exceed the equations describing them. Simulation involves constructing a mathematical/logical model incorporating most of the features of the problem. This model is tested in a variedly of hypothetical situations, and the modeled responses can then be measured.
A company experiences both variable usage rates and variable lead times for its inventory' items. The probability distributions for both usage and lead times are known. A technique the company could use for determining the optimal safety stock levels for an inventory item is
Answer(s): D
Simulation is a technique for experimenting with mathematical models using a computer. The Monte Carlo method is a technique used to generate the individual values for a random variable. This simulates the uncertainly inherent in real-world situations. The model is then run a large number of times, and the variance of the probability' distribution of the results and the average performance are determined.
Decisions are frequently classified as those made under certainly and those made under uncertainly. Certainly exists when
An event is certain if there is no doubt that it will occur. The probability is I if an event is certain to occur and 0 if it is certain not to occur. Under conditions of certainly, consequences are therefore deterministic, not 1probabilistic or unknown.
Which of the following is not an attribute of a probability distribution?
Answer(s): C
In a probability distribution, the probability of any event(s) is bounded by U (no chance) and I (certainty). The total probability of all possible outcomes must add up to 1. Also, a probability distribution models a random variable through the use of a formula or graph that provides the probability associated with the occurrence of certain values of the random variable. If only one outcome is possible, the variable is not random but rather constant and known with certainty.
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