When evaluating a cost function and its estimates,it is important to see if the estimated cost function makes economic sense.This is assessed by ________.
A)examining the sign of the coefficient of determination
B)examining the sign of the fixed cost estimate
C)examining the sign of the variable cost estimate
D)examining the standard deviation of the cost driver

Question

Quizplus · Accepted Answer

Examining the sign of the variable cost estimates is important in evaluating the economic sense of the estimated cost function. Variable cost estimates should have a positive sign, as costs are expected to increase as the level of activity increases. If the variable cost estimate has a negative sign, it indicates that the model is not accurately representing the real-world relationship between cost and activity. The other choices are not relevant for evaluating the economic sense of the estimated cost function.

When Evaluating a Cost Function and Its Estimates,it Is Important