An accounting firm assists small businesses file annual tax forms. It assigns each new client to a CPA at the firm who specializes in companies of that type and size. For instance, one CPA specializes in boutique clothing retailers with annual sales of about $2 million. To speed the process, each business submits a preliminary tax form to the accounting firm.
(a) Would a normal model be useful to describe the total size of adjustments when a CPA reviews the preliminary tax forms? (For example, suppose the preliminary form claims that the business owes taxes of $40,000. If form completed by the CPA says the tax obligation is $35,000, then the adjustment is -$5,000.)
(b) What data would help you decide if a normal model is appropriate? (You cannot use data from the current year; those data are not yet available.)
(c) If the average adjustment obtained by the CPA who specializes in clothing retailers is -$7,000 (i.e., $7,000 less than indicated on the preliminary form), then what SD implies that all but a few business end up with lower taxes after the work of these accountants? (Assume a normal model for this question.)
(d) Would a normal model be useful to describe the total size of adjustments for all of the CPAs at this accounting firm?