A company used simple regression analysis to analyze maintenance costs against machine hours (MH) for a 26-week period when the plant was in full operation. The regression yielded the following estimated cost function:
Maintenance Cost = $60 + $0.25/MH
The regression analysis also generated a coefficient of determination (R2), or goodness of fit, of 0.85. Which of the following statements regarding this regression analysis is appropriate?
- This regression can be used to determine the maintenance cost for any period at any activity level by substituting the machine hours in the equation.
- The $60 component represents the best estimate of fixed maintenance costs for the company in a shutdown situation.
- The $0.25 component is the slope coefficient of the cost estimate and represents the average variable maintenance cost per machine hour.
- The coefficient of determination of R2 = 0.85 indicates that the goodness of fit is poor because the value is close to the maximum value of one.