Question

What are the three criteria of comparative data? Why are they significant? Provide one example of how you have used comparative data, in your professional or personal experience.

Answer 1

Comparative data can become an important tool for the manager. It is important, however, to fully understand the requirements and the uses of such data.

COMPARABILITY REQUIREMENTS

True comparability needs to meet three criteria: consis- tency, verification, and unit measurement. Each is dis- cussed in this section.

Consistency

Three equally important elements of consistency should be considered as follows.

Time Periods

Time periods should be consistent. For example, a ten- month period should not be compared to a twelve- month period. Instead, the ten-month period should be annualized, as described within this chapter.

Consistent Methodology

The same methods should be used across time periods. For example, Chapter 8 discusses the use of two inven- tory methods: first-in, first-out (FIFO) versus last-in, last- out (LIFO). The same inventory method—one or the other—should always be used consistently for both the beginning of the year and for the end of the year.

After completing this chapter, you should be able to

1. Understand the three criteria for true comparability.

2. Understand the four uses of comparative data.

3. Annualize partial-year expenses.

4. Apply inflation factors. 5. Understand basic currency