Biden Company manufactures small jewelry boxes.The company is considering three cost drivers for measuring support costs in the factory.The following cost functions have been estimated using each cost driver:
$\begin{array} { l }\text { Cost Driver }&\text { Cost Function }&R^2\
\text { 1. } X=\text { gluing time in hours }&Y=\$ 20,000+\$ 5 X&R^2=0.20\
\text { 2. } X=\text { labor hours }&Y=\$ 13,000+\$ 10 X&R^2=0.55\
\text { 3. } X=\text { machine hours }&Y=\$ 15,000+\$ 7 X&R^2=0.90\
\end{array}$

Which cost driver should be chosen?

Question

Biden Company manufactures small jewelry boxes.The company is considering three cost drivers for measuring support costs in the factory.The following cost functions have been estimated using each cost driver:
$\begin{array} { l  }\text { Cost Driver }&\text { Cost Function }&R^2\
\text { 1. } X=\text { gluing time in hours }&Y=\$ 20,000+\$ 5 X&R^2=0.20\
\text { 2. } X=\text { labor hours }&Y=\$ 13,000+\$ 10 X&R^2=0.55\
\text { 3. } X=\text { machine hours }&Y=\$ 15,000+\$ 7 X&R^2=0.90\
\end{array}$

Which cost driver should be chosen?

Quizplus · Accepted Answer

The cost driver with the highest $R^2$ value (0.90) is machine hours, indicating it has the strongest correlation with the support costs, making it the best choice.

Biden Company Manufactures Small Jewelry Boxes Which Cost Driver Should Be Chosen? A) Gluing Time in Cost

Biden Company Manufactures Small Jewelry Boxes Which Cost Driver Should Be Chosen?
A) Gluing Time in Cost