For each of the following situations tell whether the predicted value or the res
ID: 3052598 • Letter: F
Question
For each of the following situations tell whether the predicted value or the residual would be most useful.
a) For budgeting purposes you need to know what number to place under "cost of goods sold" based on the expected sales figures for next quarter.
b) You would like to see how your divisions are performing after adjusting for how well you expect them to do given the resources they consume.
c) To help you set the salary of a new employee, you want to know a reasonable pay figure for a person with the same experience.
d) As part of a payroll policy analysis report, you wish to show how much more (or less) each employee is paid compared to the expected salary for a person with the same experience.
Explanation / Answer
a) Since we already have the expected sale figures for next quater the residual value will tell us how accurate the prediction was in the previous time period. Hence residual will be most useful
b) Since we are looking at a before and after adjustments in the situation we would be interested in the residual numbers to see how well the division is performing after adjustments. Hence residual will be most useful.
c) Here we are trying to figure out a salary for a new employee hence predicted value is most useful
d)
As we are making a comparision between the current salary and the expected salary
ie = current- expected is of interest
Hence residual value will be most useful
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