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Dear John,
Please assist me with following two questions:First one: The following statements relate to the advantages that linear regression analysis has over the high low method in the analysis of cost behaviour:
1 The reliability of the analysis can be statistically tested
2 It takes into account all of the data
3 It assumes linear cost behaviour
Which statements are true?
A 1 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3
My answer is A, as it can be statistically tested; by applying the high low method we take into account only the high and low outputs, not all of the data; and it doesn’t assumes linear cost behavior. However, the correct answer is B, why?Second one: The Eastland Postal Service is government owned. The government requires it to provide a parcel delivery service to every home and business in Eastland at a low price which is set by the government. Express Couriers Co is a privately owned parcel delivery company that also operates in Eastland. It is not subject to government regulation and most of its deliveries are to large businesses located in Eastland’s
capital city. You have been asked to assess the relative efficiency of the management of the two organisations. Which of the following factors should NOT be allowed for when comparing the ROCE of the two organisations to assess the efficiency of their management?
A Differences in prices charged
B Differences in objectives pursued
C Differences in workforce motivation
D Differences in geographic areas servedI think that differences in prices charged shouldn’t be allowed as it is written that low price is set by government. Other three options can be easily applied to assess the efficiency as there is no any limitations to companies. But the correct answer is workforce motivation. How it can be, please advice.
In future, when you are asking about two different things then start two separate threads. The reason is that we do not give private tuition and our answers are for the benefit of everyone – they can search for the topics.
For your first question, certainly statement 1 is correct. However, as you say yourself, the high low method only considers the highest and lowest whereas regression analysis considers all the data. That is why statement 2 is correct also.
For your second question, the question asks about the efficiency of the management. The objectives will be dictated by different people and so need to be allowed for. The geographic areas are different and so need to be allowed for. Workforce motivation is something that is the responsibility of the managements and so it should not be allowed for.
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