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    PracticeACCAACCA MA — Management Accounting Practice Exam 1Question 10
    Medium2 marksMultiple Choice
    Syllabus B: Data analysis and statistical techniquesCorrelationRegressionCoefficient of Determination

    ACCA · Question 10 · Syllabus B: Data analysis and statistical techniques

    A global logistics company calculates the correlation coefficient (r) between the distance a delivery truck travels and its maintenance costs to be +0.90.

    What is the coefficient of determination, and what does it signify?

    Answer options:

    A.

    0.90; 90% of the variation in maintenance costs is explained by the distance traveled.

    B.

    0.81; 81% of the variation in maintenance costs is explained by the distance traveled.

    C.

    0.81; 81% of the variation in distance traveled is caused by maintenance costs.

    D.

    1.80; Maintenance costs increase by 1.80 for every mile traveled.

    How to approach this question

    Square the correlation coefficient (r) to find the coefficient of determination (r^2). Interpret it as the percentage of variation in the dependent variable explained by the independent variable.

    Full Answer

    B.0.81; 81% of the variation in maintenance costs is explained by the distance traveled.✓ Correct
    The coefficient of determination is calculated by squaring the correlation coefficient (r). Here, r = 0.90, so r^2 = 0.81 or 81%. This means that 81% of the total variation in the dependent variable (maintenance costs) can be explained by changes in the independent variable (distance traveled).

    Common mistakes

    Confusing r with r^2, or misinterpreting the direction of causality.
    Question 09All questionsQuestion 11

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