Sandler Company manufactures electronic devices.The company is considering three cost drivers for measuring maintenance costs in the factory.The following cost functions have been estimated using each cost driver:
$\begin{array} { l }\text { Cost Driver }&\text { Cost Function }&R^2\
\text { 1. } X=\text { number of parts }&Y=\$ 20,000+\$ 5 X&R^2=0.40\
\text { 2. } X=\text { number of labor hours }&Y=\$ 13,000+\$ 10 X&R^2=0.95\
\text { 3. } X=\text { number of machine hours }&Y=\$ 15,000+\$ 7 X&R^2=0.30\
\end{array}$

Which cost driver should be chosen?

Question

Sandler Company manufactures electronic devices.The company is considering three cost drivers for measuring maintenance costs in the factory.The following cost functions have been estimated using each cost driver:
$\begin{array} { l  }\text { Cost Driver }&\text { Cost Function }&R^2\
\text { 1. } X=\text { number of parts }&Y=\$ 20,000+\$ 5 X&R^2=0.40\
\text { 2. } X=\text { number of labor hours }&Y=\$ 13,000+\$ 10 X&R^2=0.95\
\text { 3. } X=\text { number of machine hours }&Y=\$ 15,000+\$ 7 X&R^2=0.30\
\end{array}$

Which cost driver should be chosen?

Quizplus · Accepted Answer

The cost driver with the highest $R^2$ value should be chosen because it indicates the strongest correlation between the cost driver and the maintenance costs. In this case, the number of labor hours has the highest $R^2$ value of 0.95, suggesting it is the most reliable predictor of maintenance costs.

Sandler Company Manufactures Electronic Devices Which Cost Driver Should Be Chosen? A) Number of Parts

Sandler Company Manufactures Electronic Devices Which Cost Driver Should Be Chosen?
A) Number of Parts