Question

1. Midose’s Stables used two different independent variables (trainer hours and number of horses) in two different equations to evaluate the cost of training horses. The most recent results of the two regressions are as follows: Trainer’s hours:

Variable Coefficient Standard error t-Variable
Constant $1,004.65 $217.93 4.61
Independent variable $22.99 $3.23 7.11
r² = 0.56
Number of horses:
Variable Coefficient Standard error t-Variable
Constant $5,240.95 $1,180.40 4.44
Independent variable $951.48 $271.85 3.50
r2 = 0.63
What is the estimated total cost for the coming year if 15,000 trainer hours are incurred and the stable has 350 horses to be trained, based upon the best cost driver?

a. $338,258.95
b. $345,854.65
c. $14,277,440.95
d. $96,327.90
e. None of the above

Answer 1

Since the r² is higher for the cost driver the number of horses at r² = 0.63, the number of horses is the best cost driver.

Estimated total cost using the number of horses as the cost driver, is Y = $5,240.95 + ($951.48 x Number of horses)

Estimated total cost = $5,240.95 + ($951.48 x 350) = $5,240.95 + $333,018 = $338,258.95

Answer: a. $338,258.95