- 6 Marks
MA – Nov 2019 – L2 – Q2a – Decision-Making Techniques
Explains how profit maximization leads to shareholder wealth maximization and how constraints, satisficing, and optimizing affect decision-making.
Question
a) Management Accountants are often engaged in decision-making processes that would yield optimal results, given a limited amount of resources available. Such decisions are expected to yield to shareholder wealth maximization through the maximization of profits. Unfortunately, however, constraints sometimes lead to satisficing rather than optimizing decision making.
Required:
i) Explain how profit maximization can lead to shareholder wealth maximization. (4 marks)
ii) Explain how constraints, satisficing, and optimizing affect the management accountant’s decision-making. (6 marks)
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