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Unformatted text preview: residuals, the Durbin­Watson statist ic of 1.36 suggests the residuals are independent. However, we must be caut ious when drawing inferences fro m only 9 observat ions. Goodness of fit Significance of Independent Variables Specificat ion analys is of estimat ion assumpt ions 10­34 3. Mult ico llinearit y is an issue that can arise with mult iple regressio n but not simple regressio n analys is. Mult ico llinearit y means that the independent variables are highly correlated. The correlat ion feature in Excel’s Data Analys is reveals a coeffic ient of correlat ion of 0.56 between number of setups and number of setup­hours. Since the correlat ion is less than 0.70, the mult iple regressio n does not suffer fro m mult ico llinearit y problems. 4. The simple regressio n model using the number of setup­hours as the independent variable achieves a comparable r2 to the mult iple regressio n model. However, the mult iple regressio n model includes an insignificant independent variable, number of setups. Adding this variable does not improve Williams’ abilit y to better estimate setup costs. Bebe should use the simple regression model with number of setup­hours as the independent variable to estimate costs. 10­40 (40–50 min.) Purchasing Department cost drivers, activity­based costing, simple regression analysis. The problem reports the exact t­values fro m the co mputer runs o f the data. Because the coefficients and standard errors given in the problem are rounded to three decimal places, dividing the coefficient by the standard error may yield slightly different t­values. 1. Plots of the data used in Regressio ns 1 to 3 are in Solution Exhibit 10­40A. See So lut ion Exhibit 10­40B for a comparison of the three regressio n models. 2. Both Regressio ns 2 and 3 are well­specified regressio n models. The slope coefficients on their respect ive independent variables are significant ly different fro m zero. These result s support the Couture Fabrics’ presentation in which the number o f purchase orders and the number o f suppliers were reported to be drivers of purchasing department cos...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

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