ExpertCPA · Question 08 · Area I: Business Analysis
A company is using simple linear regression to forecast maintenance costs based on machine hours. The regression output provides the following equation: Y = $5,000 + $12X, where Y is the total maintenance cost and X is machine hours. The R-squared value is 0.85.<br/><br/>If the company expects to operate 2,500 machine hours next month, which of the following statements is correct regarding the forecasted cost?
A company is using simple linear regression to forecast maintenance costs based on machine hours. The regression output provides the following equation: Y = $5,000 + $12X, where Y is the total maintenance cost and X is machine hours. The R-squared value is 0.85.<br/><br/>If the company expects to operate 2,500 machine hours next month, which of the following statements is correct regarding the forecasted cost?
Answer options:
The forecasted cost is $30,000, and the R-squared indicates that 85% of the variance in machine hours is explained by maintenance costs.
The forecasted cost is $35,000, and the R-squared indicates that 85% of the variance in maintenance costs is explained by machine hours.
The forecasted cost is $35,000, and the R-squared indicates a weak correlation between machine hours and maintenance costs.
The forecasted cost is $30,000, and the R-squared indicates that 85% of the data points fall exactly on the regression line.
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