Question

You are provided with three alternative cost functions to help predict future costs. Which function will...

You are provided with three alternative cost functions to help predict future costs. Which function will provide the most accurate prediction and why? Function A: y=15x + 1,372, where x is machine hours. R2 =.56 Function B: y=22x + 2,382, where x is labor hours. R2 =.21 Function C: y= 28x + 3,571, where x is production runs R2 =.67

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Answer #1

Highest square of R is Better for accurate about future costs.

From above all above equation, Highest Square of R is 0.67 when Production runs used as Cost driver. It means Suitable Cost driver is Production runs.

Function C is the best cost functions to help predict future costs. Because of it has highest square of R.

Answer

Function C: y= 28x + 3,571, where x is production runs R2 =.67

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