Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent)
r = 0.99821
r² = 0.99780
The percent of the total variance that can be explained by the regression equation is:

Question

Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent)
r = 0.99821
r² = 0.99780
The percent of the total variance that can be explained by the regression equation is:

Quizplus · Accepted Answer

The coefficient of determination, r², represents the proportion of the total variation in maintenance costs that can be explained by the linear regression equation. In this case, r² = 0.99780, which means that 99.780% of the total variance in maintenance costs can be explained by the regression equation. Therefore, the correct answer is D.