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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.
- Spring '10
- Cost Accounting