Question

The degree of association between cost and activity output is measured by?

1) goodness of fit
2) hypothesis test of cost parameters
3) confidence intervals
4) coefficient of variation

Answer 1

The degree of association between cost and activity output is measured by the 4) coefficient of variation.

Step-by-step explanation:

The coefficient of variation (CV) is a statistical measure used to assess the relative variability or dispersion of a dataset. In the context of cost and activity output, the coefficient of variation quantifies the degree of association between these variables by expressing the ratio of the standard deviation to the mean, providing insight into the consistency of the relationship.

A higher coefficient of variation indicates greater variability in the relationship between cost and activity output, while a lower value suggests more stability.

To calculate the coefficient of variation, the standard deviation (σ) is divided by the mean (μ), and the result is multiplied by 100 to express the value as a percentage. Mathematically, this is represented as
`\(CV = \left((\sigma)/(\mu)\right) * 100\).`

The coefficient of variation is a valuable tool in cost analysis, helping professionals assess the reliability and predictability of cost patterns concerning varying levels of activity output. It provides a standardized measure that is particularly useful for comparing the degree of association between cost and activity output across different scenarios or time periods.

In summary, the coefficient of variation serves as a crucial metric for evaluating the relationship between cost and activity output, offering insights into the consistency and reliability of this association.

correct option is 4) coefficient of variation