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The Pitt Corporation has been outsourcing data processing in the belief that such outsourcing would reduce costs and increase corporate profitability. In spite of this, there has been no meaningful increase in corporate profitability.
Previously, Pitt used a single-rate method to allocate data processing costs. A per unit cost for data processing was computed and compared to the price of the outside supplier. The price of the outside supplier was lower, so the outside bid was accepted.
Required:
Formulate a possible reason why Pitt's profitability has not shown improvement in terms of the cost allocation method used.
Alpha (α)
Alpha (α) represents the level of significance in hypothesis testing, defining the threshold for rejecting the null hypothesis.
Critical Value
A critical value is a point on the distribution that represents a threshold above which significant results are considered to occur.
Statistical Hypotheses
Statements made for statistical testing, including a null hypothesis and possibly an alternative hypothesis, concerning the parameters or distribution of a population.
Research Hypotheses
Proposals made by researchers that predict a potential outcome, relationship, or effect that will be tested through study or experimentation.
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