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.

---

Definitions:

Traditional Christian Society

A community or society that adheres to Christian teachings and practices as they have been traditionally understood and followed, often emphasizing historical doctrines and morality.

Businesses

Organizations engaged in commercial, industrial, or professional activities, aiming to generate profits.

Morality of Employees

The principles concerning the distinction between right and wrong or good and bad behavior as demonstrated by employees in a workplace setting.

Arthur Tappan

A prominent 19th-century American abolitionist and businessman known for his involvement in anti-slavery movements and the founding of the American Anti-Slavery Society.