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(CMA adapted) The following information has been accumulated to be used in preparing the 2008 annual budget for the Salem Corporation. The cost behavior pattern of the maintenance costs must be determined for this budget. The accounting staff has suggested that linear regression be employed to derive a cost estimation equation in the form of TC = F +VX for the total maintenance costs. Information regarding the maintenance hours and costs for 2007 and the partial results of the regression are as follows:

t-table for Single-Tailed Values of t

-The percent of the change in the maintenance costs that can be explained by a change in the activity hours is:
A) 68.46%
B) 12.12%
C) 34.47%
D) 99.72%

Question

Use the following to answer questions:
(CMA adapted) The following information has been accumulated to be used in preparing the 2008 annual budget for the Salem Corporation. The cost behavior pattern of the maintenance costs must be determined for this budget. The accounting staff has suggested that linear regression be employed to derive a cost estimation equation in the form of TC = F +VX for the total maintenance costs. Information regarding the maintenance hours and costs for 2007 and the partial results of the regression are as follows:
  
t-table for Single-Tailed Values of t
 
-The percent of the change in the maintenance costs that can be explained by a change in the activity hours is:
A) 68.46% 
B) 12.12% 
C) 34.47% 
D) 99.72%

Quizplus · Accepted Answer

The percent of the change in the maintenance costs that can be explained by a change in the activity hours is typically represented by the coefficient of determination (R^2) in regression analysis. An R^2 of 99.72% indicates that 99.72% of the variance in maintenance costs can be explained by the variance in activity hours, suggesting a very strong relationship between these two variables.

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