Auditors are often required to compare the audited (or current) value of an inventory item with the book (or listed) value. If a company is keeping its inventory and books up to date, there should be a strong linear relationship between the audited and book values. A company sampled ten inventory items and obtained the audited and book values given in the accompanying table. Fit the model Y = β0 + β1x +ε to these data.
|
Item
|
Audit Value (yi)
|
Book Value (xi)
|
|
1
|
9
|
10
|
|
2
|
14
|
12
|
|
3
|
7
|
9
|
|
4
|
29
|
27
|
|
5
|
45
|
47
|
|
6
|
109
|
112
|
|
7
|
40
|
36
|
|
8
|
238
|
241
|
|
9
|
60
|
59
|
|
10
|
170
|
167
|
a. What is your estimate for the expected change in audited value for a one-unit change in book value?
b. If the book value is x = 100, what would you use to estimate the audited value?