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10 replies to this topic

#1 agihcam

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Posted 09 August 2007 - 09:56 AM

Historical data from the last two years prior to this month has established that the average time to process an invoice has been 40 days. What can you say about this month's process performance with respect to the previous two-year average? Why?
a>This month average is not significantly larger than the historical average
b>This month average is significantly larger than the historical average
c>This month average is significantly less than the historical average
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#2 savagegamer90

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Posted 09 August 2007 - 06:25 PM

You would choose a because it has the least amount of variation, hence the average.
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#3 jpaterson3

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Posted 09 August 2007 - 09:46 PM

Answer b since the company has probably grown since the start of the data taking.
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#4 Martini

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Posted 09 August 2007 - 11:10 PM

hint:
the correct answer has not yet been given
Good teaser, agihcam. Keep 'em comin' guys!
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#5 agihcam

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Posted 10 August 2007 - 01:01 AM

Amazing! How would you guys conclude the answers without being known the status of this month's performance
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#6 mwh

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Posted 10 August 2007 - 01:59 AM

What kind of "average", mean, median, mode.... or does it even matter to the solution?
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#7 Writersblock

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Posted 10 August 2007 - 02:08 AM

I don't think it matters. I think he's getting at the fact that because the average is 40 days and a month is 30ish, we can't know about the current month's performance in relationship to the 40 day timeframe until the month is gone.
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#8 Martini

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Posted 10 August 2007 - 02:13 AM

When businesses speak of the average time spent or money made over a period of time, they are almost always speaking about the mean average.
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#9 Martini

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Posted 10 August 2007 - 02:19 AM

the fact that because the average is 40 days and a month is 30ish, we can't know about the current month's performance in relationship to the 40 day timeframe until the month is gone.


Excellent observation, Writersblock! The other problem was already answered by the OP.
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#10 cpotting

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Posted 15 August 2007 - 05:52 AM

It has been correctly noted that since this month is not over, we can't determine a proper average. However, never underestimate the ability of accountants to ignore facts and plod on anyway ("Numbers be d***ned - the amounts don't matter, just as long as they balance!").

Proceeding on my known experience with business idio... um, execs and accounting mor... experts, I will assume they tallied up the numbers without considering the logic.

The previous 2 years worth of data would then reflect an understated average length of time. This is because the invoices that were started to be processed during the 38+ (we don't know the deviation from the mean) days, but that have not been finished, have recorded processing times of 38 days or less (or 37 or 36 or 35 depending on the month). Yes, I know the data is not valid because the invoice hasn't finished being processed - but modern business types certainly don't let little details like that stop them.

If you have a really good accountant (i.e. one who thinks he knows how to write macros for his spreadsheet), then he will also chop of the starting date for invoices started 25 and 26 months ago, rendering them as being processed in under 31 days and 9 days respectively (ad nauseum for the variations in the length of months).

So it is safe to say that our bright greasy-haired CPA has understated the average length of time to process invoices. The amount of understatement will be about 20 days off for the last month and 20 days for the first month, and about 5 days for the second month (this assumes an even distribution of invoices across time).

However, carry this inane procedure through to this month (and believe me, they will), and you will see that all invoices started this month will be severely understated with the average amount being approximately 1/2 of the current day of the month.

The correct answer would then be

c>b>This month average is significantly less than the historical average



P.S. The "Numbers be d**ned..." thing comes from experience. I was a programmer for an internationally renowned watch and clock company. The accountanting department had me yanked off of a problem were a clerk incorrectly indicated that we had used some $3,000,000.00 worth of materials to fix a watch, and instead had me work to correct a report that showed a $5.00 mismatch in its columns. The rational was that (and I am not lying) "the $3 million dollar mistake still balances in the books, but the $5.00 problem doesn't - so it is the more critical error". I have more examples too - refer to my book "Snake Oil Salemen and Faith Healers - the Foundations of Modern Accounting Practices"
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