Question Details

Which equation should be selected for the analysis



Arfaei Company manufactures chairs. Because the efforts of manufacturing are approximately equal between labor and machinery, management is considering other possible cost drivers. By considering different cost drivers, it is anticipated that the estimating process can be improved. The following cost estimating equations with their r2 values have been determined for 20X5: 

	1.	X = cutting time	y = $19,500 + $20X	r2 = 0.65
	2.	X = labor	y = $5,000 + $25X	r2 = 0.49
	3.	X = machinery	y = $44,500 + $5X	r2 = 0.55 

Required:
a.	Which equation should be selected for the analysis?
b.	What other factors should be included in the selection of the estimating equation? 




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