A Company Used Simple Regression Analysis to Analyze Maintenance Costs

question 320

Multiple Choice

A company used simple regression analysis to analyze maintenance costs against machine hours (MH) for a 26-week period when the plant was in full operation. The regression yielded the following estimated cost function: Maintenance Cost = $60 + $0.25/MH The regression analysis also generated a coefficient of determination (R2) , or goodness of fit, of 0.85. Which of the following statements regarding this regression analysis is appropriate?

• A) This regression can be used to determine the maintenance cost for any period at any activity level by substituting the machine hours in the equation.
• B) The $60 component represents the best estimate of fixed maintenance costs for the company in a shutdown situation.
• C) The $0.25 component is the slope coefficient of the cost estimate and represents the average variable maintenance cost per machine hour.
• D) The coefficient of determination of R2 = 0.85 indicates that the goodness of fit is poor because the value is close to the maximum value of one.

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Definitions:

Management Functions

Fundamental tasks performed by managers, which typically include planning, organizing, leading, and controlling.

Important

Something of great significance or value.

Organisation Structures

Refers to the way in which a company or organization is arranged to aid in achieving its objectives, often categorizing departments and roles.

Chain of Command

The hierarchical structure within an organization that outlines authority and responsibility relationships.