As a Preliminary Step in the Selection of Variables to Use

question 103

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:

Evaluative Readjustment

The process of adjusting one's evaluation or appraisal of a situation or information, based on new evidence or perspectives.

Encounter

A meeting or engaging experience between individuals, often leading to an exchange of ideas or a conflict.

Psychoanalytic

Pertaining to the theory and practice of psychoanalysis, which emphasizes unconscious psychological processes and their effects on behavior.

Gestalt

A psychological theory that emphasizes the holistic and intrinsic patterns and shapes people perceive in their visual and experiential worlds.