A high adjusted R-square for the regression of a cost against a cost driver indicates:
A) The predicted linear relationship between the cost and the cost driver is probably correct
B) The relationship between the cost and the cost driver is probably linear
C) The cost driver explains a high percentage of the variation of the cost
D) The cost driver is statistically significant

Question

Quizplus · Accepted Answer

A high adjusted R-square for the regression of a cost against a cost driver indicates that the cost driver explains a high percentage of the variation of the cost. This means that the cost driver is a good predictor of the cost and can be used for cost estimation and budgeting purposes. It does not necessarily indicate that the relationship is linear or that the cost driver is statistically significant.

A High Adjusted R-Square for the Regression of a Cost