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Testing the Slope
The strong point of the relationship among the dependent variable and each of the independent variables can be determined using 3 methods:
1) Correlation coefficient (r): Correlation coefficient measures the degree of association between two variables such as the cost and the activity level.2) Standard error of the slope (Sb): Correlation coefficient measures the degree of association between two variables such as the cost and the activity level.3) Z or t statistics:
If n ≥30 we use Z, if, n < 30 we use t statistics. These statistics can be used to test the hypothesis:
Ho: B = O that is, there is no relationship between X and YHA: B≠ O There is a significant relationship between X and Y
Model Construction The success of a simulation exercise is related to the predictive quality of the underlying model, so that considerable care should be taken with model const
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THE BREAK EVEN POINT
It is the most practical way of estimating working capital needs. In such method, the finance manager gets ready a working capital forecast. While preparing such forecast, firstly
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Assumptions for relevant costs The key assumptions made in relevant costing are: The cost behavior is recognized. The amount of fixed costs, unit variable costs, selli
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