In specification analysis, the assumptions regarding residuals state that they must be __________?
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Answer: B. independent
Explanation
Regression assumptions require regression residuals to be independent of one another. Correlated residuals violate statistical rules and lead to unreliable cost estimation models. The correct choice correctly identifies independence as a core requirement for regression residuals. Regression analysis helps accountants estimate cost drivers and predict future expenses. Residuals represent the vertical distance between actual data points and the estimated regression line. Checking residual independence ensures the statistical model is unbiased and reliable.
Cost analysts test regression residuals for autocorrelation when building monthly overhead budgets. Violating residual independence assumptions can cause severe errors in cost driver forecasting. Ensuring statistical validity protects corporate decision-makers from relying on flawed cost models. Worst is a subjective qualitative descriptor rather than a formal statistical regression assumption. Dependent residuals violate statistical rules because regression errors must remain independent. Good is an informal evaluation word and not the technical term required by regression theory.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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