Business 2: Forecasting and Projection Flashcards
What is sensitivity analysis?
- Process of experimenting with different parameters and assumptions regarding a model and cataloging the range of results to view the possible consequences of a decision
What is a sensitivity analysis also referred to as?
What-if analysis
What is the biggest drawback of sensitivity analysis?
Implicit assumption that variables are independent
In preparing models for future periods, managers may prepare multiple different scenarios which represent what?
Alternative possible outcomes
Forecasting (probability/risk) analysis is an extension of what type of analysis?
Sensitivity analysis
What is the purpose of forecasting?
Predict future values of a dependent variable using info from previous time periods
Total costs = ?
= FC + (VC per unit * Units produced)
Linear regression is a method for studying the relationship b/w what?
Two or more variables
In a simple linear regression model, what is the basic assumption?
Increase in # of units produced will increase total costs
The simple linear regression model takes what basic form?
y = a + Bx
y = dependent variable (total cost) x = independent variable (# units produced) a = y-axis intercept (fixed cost) B = slope (VC per unit)
What two statistical measures can be used to evaluate regression analysis?
1) r = coefficient of correlation
2) R^2 = coefficient of determination
What does the coefficient of correlation (r) measure?
Strength of the linear relationship between x and y
What is the range of the coefficient of correlation (r)?
-1 to 1
What does r = 1 mean?
Perfect positive correlation
What does r = -1 mean?
Perfect inverse correlation
What does r = 0 mean?
No correlation
What does the coefficient of determination (R^2) measure?
Proportion of the total variation in y explained by x
The value of the coefficient of determination (R^2) lies within what range?
0 and 1
What does a higher R^2 indicate?
- The higher the R^2, the greater the proportion of the total variation in y that is explained by the variation in x
- Regression line fits better
Learning curve analysis is based on what premise?
That as workers become more familiar with a specific task, the per-unit labor hours will decline as experience is gained and production becomes more efficient
True or False.
The high-low method is a simple technique that is used to estimate the fixed and variable portions of cost, usually production costs.
True
The Delphi method for forecasting relies mostly on what?
Judgment
The Delphi model of forecasting involves the use of what?
- Multiple teams in geographically remote locations
- Info is shared and gathered in a central point and compiled and then redistributed for comment
What is sensitivity analysis?
- Process of experimenting with different parameters and assumptions regarding a model and cataloging the range of results to view the possible consequences of a decision
True or false.
Forecasting is an extension of sensitivity analysis that involves an examination of historical relationships to formulate predictions regarding independent variables in order to predict future values of dependent variables.
True
What is linear regression?
- Method for studying the relationships b/w two or more variables
- Used to predict the value of y (total cost) corresponding to given values of independent variables (fixed cost (A) , VC per unit (B), and production expressed in units (x))
The high-low method is a simple technique that is used to do what?
Estimate the fixed and variable portions of costs, usually production costs
