Answer the following question: Select two of the seben common problems with data collection identified on p. 353-354 of your textbook. For the two problems you select, explain in your own words why that problem exists, give a real world example of a situation in which that problem might be encountered (the example cannot be from the book), and describe how a cost analyst can overcome the problem in your example. In your description of how to overcome the problem, you should be specific about what needs to be done. DO not simply repeat what is in the text book.

Question

6. The relationship between the cost driver and the cost is not stationary. That is, the
underlying process that generated the observations has not remained stable over
time. For example, the relationship between number of machine-hours and manufacturing
overhead costs is unlikely to be stationary when the data cover a period in
which new technology was introduced. One way to see if the relationship is stationary
is to split the sample into two parts and estimate separate cost relationships—
one for the period before the technology was introduced and one for the
period after the technology was introduced. Then, if the estimated coefficients for
the two periods are similar, the analyst can pool the data to estimate a single cost
relationship. When feasible, pooling data provides a larger data set for the estimation,
which increases confidence in the cost predictions being made.
7. Inflation has affected costs, the cost driver, or both. For example, inflation may
cause costs to change even when there is no change in the level of the cost driver.
To study the underlying cause-and-effect relationship between the level of the cost
driver and costs, the analyst should remove purely inflationary price effects from
the data by dividing each cost by the price index on the date the cost was incurred.