As a Preliminary Step in the Selection of Variables to Use

question 5

Multiple Choice

As a preliminary step in the selection of variables to use in a statistical-forecasting model, the management accountant has calculated the coefficient of correlation between the firm's sales and three economic indexes. The results were as follows: Which of the following statements indicates the best course of action for the auditor to take in the development of a forecasting model?

• A)Drop all three indexes from further consideration because a coefficient of correlation of + 1.0 is necessary for a statistically significant relationship.
• B)Include only indexes B and C in the model because they have the only negative coefficients of correlation.
• C)Include only index C in the model because its coefficient of correlation is relatively high and therefore probably statistically significant, while the coefficients of indexes A and B are likely to be insignificant.
• D)Include only index A in the model because it has the only positive coefficient of correlation.

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Definitions:

Merger

The combination of two or more companies into a single entity, often to achieve synergy and enhance competitiveness.

Corporate Statements

Corporate statements are official documents or declarations issued by a company that communicate information on its activities, financial performance, and strategies.

Takeover Disadvantages

Potential negative impacts of a corporate takeover, such as job losses, cultural clashes, and increased debt.

Corporate Funds

Money or assets owned by a corporation, used in the operation of the business or for the benefit of its shareholders.