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ACCA Applied Knowledge · Management Accounting · Analytical techniques in budgeting and forecasting

A business finds r = 0.5 between staff training hours and units processed per hour. Which conclusion is most appropriate?

The coefficient of determination is 0.5 squared, which equals 0.25. So only 25% of the variation in productivity is explained by training hours, while the remaining 75% is due to other factors.

  1. ATraining explains 50% of the variation in productivity
  2. BTraining explains 25% of the variation in productivity, so other factors explain the restCorrect
  3. CTraining explains 75% of the variation in productivity
  4. DTraining has no relationship with productivity

Explanation

r squared = 0.5 x 0.5 = 0.25, so 25% of variation in productivity is explained by training hours and 75% by other factors. Option A wrongly uses r as the explained proportion.

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