As a Preliminary Step in the Selection of Variables to Use

question 57

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:

Individualists

describe people emphasizing personal independence and the importance of individual self-reliance over collective or communal goals.

Harmonizing Agents

Individuals or elements that bring about agreement or unity within a group, often by reconciling differences.

Work Group

A collection of individuals who come together to achieve a specific goal, often within an organizational or project context.

Traditionals

Typically refers to individuals or groups that adhere to traditional values and practices, often preferring stability and continuity over change.