Exam IIA-CIA-Part2 Topic 2 Question 562 Discussion

Actual exam question for IIA's IIA-CIA-Part2 exam
Question #: 562
Topic #: 2

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 $0.25 component is the slope coefficient of the cost estimate and represents the average variable maintenance cost per machine hour. C. 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. D. The $60 component represents the best estimate of fixed maintenance costs for the company in a shutdown situation.

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