Chapter 11 - Quantitative Techniques

Question 1

What is the high low method?

Answer 1

Analyzing a semi variable cost into its fixed and variable elements based on analysis of historical info about costs and different activity levels

Question 2

How do you find the variable cost/unit in the high and low calculation?

Answer 2

Cost at high level of activity - cost of low level activity / high level activity - low level activity

Question 3

How do you calculate the fixed cost in the high- low method?

Answer 3

Total cost at activity level - total variable cost

Question 4

What are some disadvantages of high-low method?

Answer 4

Assumes that activity is the only factor affecting cost
Assumes historical costs reliably predict future costs

Question 5

What does wrights law state?

Answer 5

That as cumulative output doubles, the cumulative average time per unit falls to a fixed percentage (learning rate) of the previous average time

Question 6

What is the learning curve?

Answer 6

The mathematical expression of the commonly observed effect that, as complex and labour intensive procedures are repeated, unit labour times decrease

Question 7

When are learning curves most likely to be seen?

Answer 7

If:
The process is labour intensive
The product is new
The product is complex
Production is repetitive and there are no breaks in production

Question 8

What is the calculation for the algebraic approach?

Answer 8

Y=a x x ^b

Question 9

What does each letter stand for in the algebraic approach?

Answer 9

X= cumulative number of units
Y= cumulative average time per unit to produced X units?
A= time required to produce the first unit of output
B= index of learning (log r /log2, where r= learning rate as decimal)

Question 10

What alternative calculation should be used in the algebraic approach is we have a specific number of times and number of units has doubled?

Answer 10

Y= a x r^n

Question 11

What does each letter stand for the in the alternative calculation for the algebraic approach?

Answer 11

R = learning rate expressed as a decimal
Y= cumulative average time per unit to produce x units
A= time required to produce the first unit of output
N= number of times the units have doubled since the first unit was produced

Question 12

What happens to the learning curve over time?

Answer 12

It will cease and the time to make each successive unit stabilizes at a constant time per unit

Question 13

What is linear regression?

Answer 13

Performs a similar role to high-low method but it uses mathematical equitations that examine all data in the series in order to improve accuracy

Question 14

What is the calculation used for linear regression?

Answer 14

Y=a + bx

Question 15

What does each letter stand for in the calculation for linear regression?

Answer 15

Y= dependent variable
X = independent variable
A= intercept on y axis
B = gradient of the line

Question 16

What does linear regression calculate?

Answer 16

A straight line relationship between variables

Question 17

What is correlation?

Answer 17

Concerned with establishing how strong the straight line relationship is. Can be positive or negative

Question 18

What does positive correlation mean?

Answer 18

That high values of one variable are associated with high values of the other and that low values of one are associated with low values of the other

Question 19

What does negative correlation mean?

Answer 19

That low values of one variable are associated with high values of the other and vice versa

Question 20

What is the coefficient of determination?

Answer 20

This squares the correlation in order to express the strength of the relationship between the variables as a percentage

Question 21

If the correlation coefficient is r=+0.9 what does this mean?

Answer 21

Then r2 = 0.81 and that 81% of the observed changes in y can be explained by the changes in x and that 19% of the changes are due to other factors

Question 22

What are some limitations of linear regression analysis?

Answer 22

Assumes linear relationship between variables
Only measures relationship between 2 variables
Assumes that historical behaviour continues into foreseeable future

Question 23

What is time series analysis?

Answer 23

Uses moving averages to create a trend line over time, established from historical data, that, when adjusted for seasonal variations, can then be used to make predictions

Question 24

What are the 4 components of a time series?

Answer 24

The Trend
Cyclical variations
Season variations
Residual variations

Question 25

How do we calculate the trend?

Answer 25

Using high low method
By linear regression
Using moving averages

Question 26

How do we calculate seasonal variation?

Answer 26

Can be estimated by comparing an actual time series with the trend line values calculated from the time series

Question 27

For each season what is the seasonal variation?

Answer 27

The difference between the trend line value and the actual historical value for the same period

Question 28

When is the seasonal variation positive?

Answer 28

When the actual value is higher than the trend line value

Question 29

When is the seasonal variation negative?

Answer 29

When the actual value is lower than the trend line value

Question 30

What are moving averages?

Answer 30

A set of calculations used to smooth out the variations in a time series to identify a trend

Question 31

What is the additive model forecast?

Answer 31

= T+S (T is the trend line and S is the seasonal variation

Question 32

What is the multiplicative model forecast?

Answer 32

=T x S (S is normally represented as a percentage)

Question 33

What are some limitations of the time series analysis?

Answer 33

There is an assumption that what has happened in the past will happen in the future
Assumption that a straight line trend exists
Assumption that season variations are constant