The Schmidt Company used regression analysis to predict the annual cost of indirect materials. The results were as follows:
-The independent variable (activity) selected should have a high degree of correlation with the dependent variable (cost) as indicated by a coefficient of determination that is:
A) close to -1
B) close to +1
C) equal to 0
D) none of the above

Question

The Schmidt Company used regression analysis to predict the annual cost of indirect materials. The results were as follows: 
-The independent variable (activity) selected should have a high degree of correlation with the dependent variable (cost) as indicated by a coefficient of determination that is:
A) close to -1 
B) close to +1 
C) equal to 0 
D) none of the above

Quizplus · Accepted Answer

The coefficient of determination (R-squared) measures the proportion of variability in the dependent variable (cost) that can be explained by the independent variable (activity). It ranges from 0 to 1, where 0 indicates no relationship and 1 indicates a perfect relationship. Therefore, a coefficient of determination that is close to +1 indicates a strong correlation between activity and cost, making it the best choice for the independent variable.

The Schmidt Company Used Regression Analysis to Predict the Annual