How can I use an example of point estimate in the business accounting sense?© BrainMass Inc. brainmass.com December 24, 2021, 7:50 pm ad1c9bdddf
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I know that the point estimate is the statistic, computed from sample information, which is used to estmate the population parameter. My question is:
How can I use an example of point estimate in the business accounting sense? I can't think of any examples on how this can be used in the accounting world.
A point estimate of some population parameter θ is a single numerical value of of a statistic. Many estimates in accounting are point estimates using regression parameters. For example point estimates can be used in regression to estimate the total costs that a business should have incurred at a given volume of activity. Since there is some variability in the regression data, an expert may incorporate a measure of the regression variability and some desired confidence level in determining a range of possible values.
For us expert can use the standard error of the estimate and values from either a T table or a Z table for the desired confidence level. For example, assume the point estimate for a cost is $578,000 and the standard error of the estimate is $45,800. An expert wants to find the range of costs within which the actual cost should fall 95% of the time. The sample size used in the regression analysis was 60 months of data. Either the T table or the Z table gives a value of 1.96 for a 95% confidence interval. So the range of projected cost is $578,000 + ($45,800 x 1.96), or $89,768 to $6, 67,768. An assessment of the likely quantitative result. Usually applied to project costs and durations and should always include some indication of accuracy (e.g. + or - 15%). Usually used with a modifier (e.g. preliminary, conceptual, feasibility). Some application areas have specific modifiers that imply pre-set accuracy ranges (e.g., order of magnitude estimate, budget estimate, and definitive estimate in construction).