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What is the difference between projection and forecasting techniques?
 Projection techniques use primarily hypothetical scenarios and are suitable only for internal use.
 Forecasting techniques use hx data and are suitable for internal and external use. It includes both qualitative and quantitative methods.

What is a sensitivity analysis? Is this a [projection / forecasting] technique?
 A projection technique.
 If [this one variable] is changed which variables are most sensitive to this change (thus the biggest impact on profits).
 Unfortunately, it usually only involves one variable at a time.

WHITE BOARD: Using scenario analysis, what is the projected sales for next year given the following.
Last year's sales = $40M
Optimistic scenario (30% probability) = 5% increase in sales
Pessimistic scenario (20% probability) = 5% decrease in sales
Most Likely (50% probability) = no change
 (0.3*0.05)+(0.2*(.05))+(0.5*0)=0.5% growth
 $40M x 1.005 = $40.2M est. sales next yr

What is Scenario Analysis and how is it calculated? Is this a [projection / forecasting] technique?
 A projection technique
 A probability is assigned to several different potential outcomes.
 The probability of each outcome is multiplied by its effect. All scenarios are then added together to determine an overall effect.
 The overall effect is used as a multiplier on historic info to determine outcome.

When forecasting revenues, which of the following are potential independant variables and which is the dependent variable: economy, product competition, sales, growth of the industry, personal income
 Sales is the dependent variable
 All others are potential independent variables

When forecasting expenses, which of the following are potential independent variables and which is the dependent variable: total costs, fixed costs, variable costs.
 Total costs is the dependent variable.
 The others are independent variables.

Is Regression Analysis a [projection / forecasting] technique? What is the purpose of a regression analysis?
 Forecasting (based on hx data)
 To predict future outcomes, such as total cost.

Regression analysis is also known as a...
best fit line

What is the coefficient of correlation and what do the outcomes mean?
 (r)=the strength of the linear relationship
 r=+1.00 is a perfect positive correlation (upward sloping line)
 r=1.00 is a perfect negative correlation (downward sloping line)
 r=0.00 means there's no correlation (straight horizontal line)

What is the coefficient of determination?
 R^2: the proportion of the total variation in the dependent variable explained by the independent variable.
 Indicates the goodness of fit

If the coefficient of determination is 81%, what does this mean with regard to total cost?
81% of the change in total cost during a period can be attributed to changes in volume.

What is the HighLow method used for?
To estimate the fixed and variable portion of production costs.

How is HighLow calculated?
 Determine the high and low production volumes, and their respective costs. (Ignore outliers)
 Use (highlow) for both units and costs
 Determine cost/unit
 Using either the high volume or low volume numbers (the end result is the same) determine total variable costs by multiplying cost/unit x volume of that set
 Subtract this amount (total variable costs) from the costs of that set to determine the fixed costs.
 Total costs = fixed costs + (variable costs/unit x number of units)

Why is the Learning Curve method used?
 As workers perform repetitive tasks, the workers become skilled (learn) and time to complete the tasks decreases over time until a steady state is achieved.
 This steady state amount can be used as a measure of employee skill & to determine an incentive pay.

What are the requirements before one can use the Learning Curve technique?
 The activity must be repetitive in nature
 The activity must involve intense labor
 There must be little or no employee turnover
 There cannot be breaks in production

How is the Learning Curve technique calculated?
 Obtain the number of hours required to complete the very 1st run of a product
 Obtain the number of hours required to complete runs at each point when the cumulative product units doubles (1 unit, 2 units, 4 units, 8 units, etc, not 2 more units  just after the 2nd unit, or not 4 more units  just after unit #4).
 Calculate the learning curve rate based on equivalent number of units produced and then the percentage change to achieve that amount of hrs / unit.

WHITE BOARD: It takes the Jones Co 50 hours to produce the first unit of its only product. Assuming a 70% learning curve, what is the avg time and total to produce 2, 4, and 8 units? How much time was actually spent creating unit 2?
 1 unit: 50 hrs
 2 units: Avg time = 35 hrs, total time = 70 hrs
 4 units: Avg time = 24.5 hrs, total time = 98 hrs
 8 units: Avg time = 17.15 hrs, total time = 137.2 hrs
 Unit #2 actually required 20 hours to produce (70 hrs for unit #2  50 hrs for unit #1)

WHITE BOARD: It takes Jones Co 50 hours to produce the first unit and 70 hours to produce the first 2 units, what is the learning curve rate?
(70 hours) / (50x2) = 70%

When using the simple linear regression line, which of the following variables is: fixed cost, variable cost, number of units, and total cost.
 a = fixed cost
 b = variable cost
 x = # of units
 y = total cost

Using a simple linear regression line, the term ybx provides what information?
Contribution Margin

What is the Delphi Method, and what are its benefits?
 A series of questionnaires sent to experts.
 After each round, the responses are also delivered to the experts who then modify their answers based on the response.
 The result (and purpose) is to obtain a correct response through consensus.

What is the flexible budget formula? How is this used?
 y = a + bx (the same formula for regression)
 Use this formula to determine a range of total costs that change based on number of units, but fixed cost (a) remains the same.

A learning curve calculation was performed with the following results: 1 unit=5 hrs, 2 units=3.25 hrs, 4 units=2.11 hrs, 8 units=1.37 hrs. What is the avg time per unit and total time to produce 4 units?
 Avg time per unit = 2.11 hrs
 Total time = 8.45 hrs

