#3. #4.

Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different for-profit and not-for-profit entities. Two years ago, Luisa Mellina, Ginnian's partner in charge of operations, became concerned about the amount of audit time required by not-for-profit entities. As a result, she instituted a series of training programs focusing on the auditing of not-for-profit entities. Now, she would like to see if the training seemed to work. So, she ran a multiple regression on 22 months of data for Ginnian for three variables: the total monthly cost of audit professional time, the number of not-for-profit audits, and the hours of training in the audit of not-for-profit entities. The following printout was obtained: t for H. Standard Error of Parameter Estimate Parameter = 0 Pr>t 286,700 70.00 0.0001 345.00 790 3.60 0.0050 27.45 Parameter Intercept Number of not-for-profit audits Hours of training R2 = 0.79 Se = 12,030 Observations: 22 -45.50 -1.96 0.0250 5.13 Required: 1. Write out the cost equation for Ginnian's audit professional time. Y = + $ X1 + X2 2. If Ginnian expects to have 9 audits of not-for-profits next month and expects that audit professionals will have a total of 130 hours of not-for-profit training, what is the anticipated cost of professional time? s 3. Are the hours spent auditing not-for-profit entities positively or negatively correlated with audit professional costs? Is percentage of experienced team members positively or negatively correlated with audit professional cost? 4. Overall, based on your evaluation of the cost equation that was developed for the cost of audit professionals, which statement is most correct? Positive Negative the independent variables explain almost all of the variability in audit costs the confidence interval is relatively narrow the t-values are high indicating that the independent variables are predictors of audit costs the cost function cannot be used for predicting audit costs