An International Meeting of the American Accounting Association 2005 Annual Meeting August 7–10, 2005 San Francisco, California Come to the City by the Bay!

Effective Learning Strategies Forum
Monday, August 8, 2005

Session 11
An Exercise Introducing Managerial Accounting Students to Uncertainty in Decision Making

Presenter:
Elliott Levy, Bentley College

Description:
This two-part exercise introduces students to the role uncertainty plays in managerial decision making. The first part of the case gives students practice in analyzing cost structures; that is, in examining how a company’s choices between fixed and variable costs affect such measures as break-even point and operating leverage. Students will also see how different cost structures can reflect a company’s reaction to uncertainty and can affect management’s decisions. The second part of the case asks students to provide a forecast for the company for its next four quarters. In particular, students will need to use a software application to take into account the uncertainties that are involved in the company’s estimates. Both parts require that students make decisions for the company and that they defend those decisions with quantitative analysis. The exercise as a whole is designed to help students develop valuable skills in analyzing and communicating uncertainty.

Participants will learn how to use this case to shift students from seeking the “right” answer to appreciating that decision making involves uncertainty. This case can help one to effectively convey the reality that managers have choices and alternative “answers,” and to emphasize the importance of analysis and communicating recommendations.

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