For questions 11, 12, and 13 consider the following:

Green Envy, Inc. (GE) is a public company that sells recycled goods. Unfortunately, 17 of their 30 stores are located on sites need to be environmentally cleaned-up during 2020, due to pollutants. As of December 31, 2019 two sets of estimates of future environmental clean-up costs exist (see the attached Excel file). The external auditor’s estimate appears in column 2, and management’s estimate appears in column 3. Actual clean-up costs incurred during 2020 for these 17 stores sites appear in column 4. The table is also available in the accompanying Excel file.

Download table

Column 1 Column 2 Column 3 Column 4
Cleanup Site # Auditor Estimate of Clean Up Expense December 31, 2019 Green Envy Management's Estimate of Clean Up Expense December 31, 2019 Actual Cleanup Costs Incurred Year During 2020
1 $                            1,938 $                         1,133 $                     1,446
2 $                            1,338 $                            992 $                     1,413
3 $                            1,462 $                            961 $                     1,472
4 $                            1,378 $                         1,103 $                     1,504
5 $                            1,389 $                         1,103 $                     1,498
6 $                            1,381 $                            999 $                     1,543
7 $                            1,115 $                         1,049 $                     1,361
8 $                            1,936 $                         1,075 $                     1,449
9 $                            1,790 $                         1,119 $                     1,527
10 $                            1,739 $                         1,030 $                     1,430
11 $                            1,629 $                         1,106 $                     1,415
12 $                            1,246 $                         1,095 $                     1,449
13 $                            1,514 $                         1,098 $                     1,489
14 $                            1,938 $                         1,122 $                     1,533
15 $                            1,107 $                         1,082 $                     1,353
16 $                            1,856 $                            964 $                     1,387
17 $                            1,114 $                         1,047 $                     1,516

Of the management’s estimate and the auditor’s estimate of environmental clean-up costs, which appears to be noisier?

Question

For questions 11, 12, and 13 consider the following:

Green Envy, Inc. (GE) is a public company that sells recycled goods.  Unfortunately, 17 of their 30 stores are located on sites need to be environmentally cleaned-up during 2020, due to pollutants.  As of December 31, 2019 two sets of estimates of future environmental clean-up costs exist (see the attached Excel file). The external auditor’s estimate appears in column 2, and management’s estimate appears in column 3.  Actual clean-up costs incurred during 2020 for these 17 stores sites appear in column 4.  The table is also available in the accompanying Excel file.

Download table

Column 1	Column 2	Column 3	Column 4
Cleanup Site #	Auditor Estimate of Clean Up  Expense December 31, 2019	Green Envy Management's Estimate of Clean Up Expense December 31, 2019	Actual Cleanup Costs Incurred Year During 2020
1	 $                            1,938	 $                         1,133	 $                     1,446
2	 $                            1,338	 $                            992	 $                     1,413
3	 $                            1,462	 $                            961	 $                     1,472
4	 $                            1,378	 $                         1,103	 $                     1,504
5	 $                            1,389	 $                         1,103	 $                     1,498
6	 $                            1,381	 $                            999	 $                     1,543
7	 $                            1,115	 $                         1,049	 $                     1,361
8	 $                            1,936	 $                         1,075	 $                     1,449
9	 $                            1,790	 $                         1,119	 $                     1,527
10	 $                            1,739	 $                         1,030	 $                     1,430
11	 $                            1,629	 $                         1,106	 $                     1,415
12	 $                            1,246	 $                         1,095	 $                     1,449
13	 $                            1,514	 $                         1,098	 $                     1,489
14	 $                            1,938	 $                         1,122	 $                     1,533
15	 $                            1,107	 $                         1,082	 $                     1,353
16	 $                            1,856	 $                            964	 $                     1,387
17	 $                            1,114	 $                         1,047	 $                     1,516

Of the management’s estimate and the auditor’s estimate of environmental clean-up costs, which appears to be noisier?

BlackTom AI · Accepted Answer

To assess which estimate is noisier, we should compare how much the numbers vary across the 17 sites for each estimate set.
Option A: Management’s estimate. Looking at the management column, the values range from about 961 up to 1122. This is a relatively narrow spread, suggesting relatively consistent estimates across sites.
Option B: Auditor’s estimate. In the auditor column, the values range from about 1107 up to 1938. This represents a much wider spread, indicating greater variability in the auditor’s projections from site to site.
Option C: The two estimates are equally noisy. Given the observation above, the variability in the auditor’s numbers appears clearly larger than in management’s numbers, so this option is unlikely.
Option D: Impossible to tell given information provided. The data provided includes 17 paired estimates, which is sufficient to compare dispersion between the two sets, so this claim is not accurate.
Option E: None of the above. Since we do have a discernible difference in dispersion between the two sets, this choice does not apply.
In summary, the auditor’s estimates exhibit a much broader range across sites than the management estimates, which points to higher dispersion and thus noisier predictions in the auditor’s column.

accy_504_120258_250214 Practice Final Exam #2 (2020)

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