What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?
What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?
When an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year, this type of analysis is best identified as regression analysis. Regression analysis is a statistical method used to examine the relationship between two or more variables. In this case, the auditor is comparing the direct cost of production (dependent variable) to the number of employees (independent variable) over time to identify any unusual variations.
Why not Ratio analysis ?
Ratio analysis is limited to one variable at a time, while regression analysis can work with all variables simultaneously. In this question, there are multiple variables being compared to (i.e. direct cost of production each month over a period of one year)
Ratio establishes a proportion between amounts.