Requirements: Draw a decision tree for the "mailing list" problem, including all probabilities and pay offs
Requirements: Draw a decision tree for the "mailing list" problem, including all probabilities and pay offs
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter3: Internal Control Over Financial Reporting: Responsibilities Of Management And The External Auditor
Section: Chapter Questions
Problem 21RQSC
Related questions
Question
![ABC Co is a small mail order company, which sells direct to established customer on its
mailling list (using catalogúe and leaflets). And to a new customers via newspaper adversting.
The range of its prooducts covers men's and women's leisurewear, games, toys. Over the last
few years the company has built up a mailing lists of several thousand, to whom leissurewear
catalogúe and leaflets are sent from time to time. An opportunity has risen to buy from a
market research company either one or two customer lists, each on costing
$20,000. The directors estimate that, if the two list were bought, sales could be average or
low, again with equal chances
If neither list were bought, it is estimated that sales could be average or low, with the odds
4:1 in favour low sales. Whenever sales turn out to be low, the directors have a contingency
plan, in which they could decide whether or not to place advertisement in newspaper, at a
cost $9,000, offering "special purchase"
The chances of high, average or low sales of "special purchase" are estimated to be 50%,
25%, and 25% respectively. The contributions from the various sales levels (S'000) are
shown below
Sales levels
High
Average
Low
Normal business
200
160
110
Special purchase
40
16
-20
Requirements:
Draw a decision tree for the "mailing list" problem, including all probabilities and pay offs](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb96b911b-5c18-4aae-ae49-ab84378390da%2F5c989899-0eef-4f88-863a-9c9cd661813f%2Fmbupo1p_processed.jpeg&w=3840&q=75)
Transcribed Image Text:ABC Co is a small mail order company, which sells direct to established customer on its
mailling list (using catalogúe and leaflets). And to a new customers via newspaper adversting.
The range of its prooducts covers men's and women's leisurewear, games, toys. Over the last
few years the company has built up a mailing lists of several thousand, to whom leissurewear
catalogúe and leaflets are sent from time to time. An opportunity has risen to buy from a
market research company either one or two customer lists, each on costing
$20,000. The directors estimate that, if the two list were bought, sales could be average or
low, again with equal chances
If neither list were bought, it is estimated that sales could be average or low, with the odds
4:1 in favour low sales. Whenever sales turn out to be low, the directors have a contingency
plan, in which they could decide whether or not to place advertisement in newspaper, at a
cost $9,000, offering "special purchase"
The chances of high, average or low sales of "special purchase" are estimated to be 50%,
25%, and 25% respectively. The contributions from the various sales levels (S'000) are
shown below
Sales levels
High
Average
Low
Normal business
200
160
110
Special purchase
40
16
-20
Requirements:
Draw a decision tree for the "mailing list" problem, including all probabilities and pay offs
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