11) The new cost analyst in your accounting department has just received a computer-generated report that contains the results of a simple regression program for cost estimation. The summary results of the report appear as follows:
r2 = 0.75
a.What is the cost estimation equation according to the report?
b.What is the goodness of fit? What does it tell about the estimating equation?
10.4 Explain ways to clean up dirty data.
1) The ideal database for estimating cost functions quantitatively includes values for the predictor variable over a wide range.
2) For cost estimation purposes data must be collected using both time-series data and cross-sectional data.
3) Which of the following is TRUE concerning the collection of data to be used in estimating a cost function?
A) Data should contain observations for periods both before and after a major economic or technological change.
B) The time periods used to measure the outcome variable and the cost driver(s) should not be concurrent.
C) Both time series data and cross-sectional data are relevant, although both are not required.
D) All data should be viewed as being representative of the normal relationship between the outcome variable and the cost driver.
E) Data should contain observations for periods both before and after a major economic or technological change, and, both time series data and cross-sectional data are required.
4) Data collection problems arise when
A) data are recorded electronically rather than manually.
B) accrual-basis costs are used rather than cash-basis costs.
C) outliers are removed.
D) purely inflationary price effects are removed.
E) fixed and variable costs are not separately identified and both are allocated to products on a per unit basis.
5) A better database for estimating cost functions has the following characteristics:
A) Fixed costs are allocated as if they are variable costs.
B) Extreme observations are adjusted or removed.
C) Time periods differ for measuring items included in the dependent variable and the cost driver(s).
D) Homogeneous relationships between individual cost items in the outcome variable pool and cost drivers may not be present.
E) There is no causal, economically plausible relationship between individual cost items in a heterogeneous mixed pool and a single cost driver.
6) Cross-sectional data analysis includes
A) using a variety of time periods to measure the dependent variable.
B) using the highest and lowest observation.
C) analyzing different cost drivers.
D) comparing information in different cost pools.
E) observing different entities during the same time period.
7) Brad Henry has just purchased the film studio of a movie company that specializes in action adventures. He found that the company did not try to estimate the cost of making a movie. Instead it just gave the producer a budget and told him/her to make a movie within budget. Mr. Henry does not like the former movie-budget concept and desires to establish a formal cost estimation system.
What are some of the potential problems that may be encountered in changing from a budget to a cost estimation movie-making system?