In multicollinearity, the correlation coefficient between two independent variables must be greater than __________?
Correct answer: A. 0.7
- A. 0.7
- B. 0.6
- C. 0.5
- D. 0.4
Explanation
A correlation above about 0.7 between independent variables is commonly treated as an indication of multicollinearity in introductory cost analysis. Such overlap makes it difficult to isolate each variable's separate effect on cost.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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