The vertical distance measuring the gap between actual and estimated cost for each data point is categorized as __________?
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Answer: A. residual term
Explanation
A residual term represents the vertical distance or error between the actual cost data point and the estimated regression line. It quantifies how much an actual observation deviates from the statistical cost model prediction. Minimizing these residuals is the primary objective of least-squares regression analysis. In regression equations, each data point has a predicted cost and an actual recorded cost. The residual is the numerical difference between the actual value and the regression line estimate. Positive residuals indicate actual costs exceeded estimates, while negative residuals indicate the reverse.
Cost analysts examine residual terms to test the goodness of fit for cost estimation models. Large residuals suggest that important cost drivers may be missing from the regression equation. Analyzing residual plots helps identify outliers and data collection errors. Positive term is a generic descriptor and does not specifically denote the regression error distance. Negative term only describes one direction of residual error rather than the vertical distance itself. Squared term refers to the mathematical squaring of residuals used in least-squares calculations.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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