The managerial accountant at Organic Beverage Factory used spreadsheet software to run a regression analysis scenario and compile the following monthly cost data: Based on the results of the regression analysis compiled by the managerial accountant, what does the R-square indicate?

Question

The managerial accountant at Organic Beverage Factory used spreadsheet software to run a regression analysis scenario and compile the following monthly cost data:  Based on the results of the regression analysis compiled by the managerial accountant, what does the R-square indicate?

Quizplus · Accepted Answer

The R-square indicates the degree of variance in the dependent variable (in this case, cost) that can be explained by the independent variable(s) (in this case, production level). An R-square value of 1 indicates that 100% of the variance is explained, while a value of 0 indicates that none of the variance is explained. In this case, the R-square is 0.54, indicating that only 54% of the variance in cost can be explained by production level. This means that there are other factors that affect cost, which may include things like material costs, labor costs, and overhead costs. Therefore, management should use the cost equation with caution and consider other factors that may affect cost. Choice C is incorrect because an R-square above 50% does not necessarily mean that the cost equation can always be relied upon.

The Managerial Accountant at Organic Beverage Factory Used Spreadsheet Software