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Cost management if cost pressures increase the

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Unformatted text preview: nt’d) b. c. Cost control and performance evaluation. Hanks could compare actual performance with budgeted or expected numbers and seek ways to improve the efficiency of the university operations, and evaluate the performance of managers responsible for controlling overhead costs. Cost management. If cost pressures increase, the University could save costs by closing down academic programs that have few students enrolled. SOLUTION EXHIBIT 10‐29 Evaluation of Cost Function for Overhead Costs Estimated with Multiple Regression for Eastern University Criterion Number of Academic Programs and Number of Enrolled Students as Independent Variables 1. Economic Plausibility A positive relationship between overhead costs and number of academic programs and number of enrolled students is economically plausible at Eastern University. 2. Goodness of Fit r2 = 0.81, Adjusted R2 = 0.766 Excellent goodness of fit 3. Significance of Independent t‐values of 3.46 on number of academic programs and Variable(s) 2.02 on number of enrolled students are both significant, at 99% and 90% C.L.s respectively. MLR d.f. = n − k = 12 − 2 = 10 degrees of freedom At 95% C.L. t‐critical = 2.23 Therefore t‐stat of 2.02 for # of students enrolled is only statistically significant at 90% C.L. t‐ critical re 90% C.L. = 1.81 with 10 d.f. 4. Specification Analysis of The assumptions of linearity, constant variance, and Estimation normality of residuals hold, but inferences drawn Assumptions from only 12 observations are not reliable; the Durbin‐Watson statistic = 1.91 indicates that independence of residuals holds. 10‐29 (cont’d) 10‐29 (cont’d)...
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