Budget Analysis: A budget is an expression of management's expectations and goals concerning future revenues and costs. To increase their effectiveness, many budgets are flexible, including allowances for the effect of variation in uncontrolled variables. For example, the costs and revenues of many production plants are greatly affected by the number of units produced by the plant during the budget period, and this may be beyond a plant manager's control. Standard cost-accounting procedures can be used to adjust the direct-cost parts of the budget for the level of production, but it is often more difficult to handle overhead. In many cases, statistical methods are used to predict or forecast overhead from the level of production using historical data. As a simple example, consider the historical data for a certain plant. Enter the data into EXCEL and analyze it to answer the following items. Production(in10,000)units:567891011Overheadcosts(in$1,000):1211.6141515.915.317.4 State your decision. Are production and overhead costs linearly related? Reject the null hypothesis: No, production and overhead costs do not appear to be linearly related. Reject the null hypothesis: Yes, production and overhead costs appear to be linearly related. Do not reject the null hypothesis: Yes, production and overhead costs appear to be linearly related. Do not reject the null hypothesis: No, production and overhead costs do not appear to be linearly related. (c) Test whether or not the average increase in overhead cost for a 10,000 unit increase in production is different from $1,000. HINT: Keep in mind the measurement units of the variables. Use a 10% level of significance. State the hypotheses to be tested. H0:1=1,000Ha:1=1,000H0:0=0Ha:0=0H0:0=1Ha:0=1H0:1=0Ha:1=0H0:1=1Ha:1=1H0:0=1,000Ha:0=1,000 Interpret the hypotheses you specified above. H0 : None of the explanatory variables are important in explaining/predicting production. Ha : At least one explanatory variable is important in explaining/predicting production. H0 : There is no linear relationship between overhead and production. Ha : There is a linear relationship between overhead and production. H0 : The average increase in overhead for a 10,000 unit increase in production is not $1,000. Ha : The average increase in overhead for a 10,000 unit increase in production is $1,000. H0 : There is a linear relationship between overhead and production. Ha : There is no linear relationship between overhead and production. H0 : All of the explanatory variables are important in explaining/predicting production. Ha : None of the explanatory variables are important in explaining/predicting production. H0 : The average increase in overhead for a 10,000 unit increase in production is $1,000. Ha : The average increase in overhead for a 10,000 unit increase in production is not $1,000. State the decision rule. Reject H0 if p value 0.10. Do not reject H0 if p value 0.10. Reject H0 if p value >0.05. Do not reject H0 if p value 0.05. Reject H0 if p value 0.10. Do not reject H0 if p value 0.10. Reject H0 if p value >0.05. Do not reject H0 if p value 0.05. Reject H0 if p value
