Based on observation and knowledge of the production process, the controller of Nellysford Company believes that the

Question:

Based on observation and knowledge of the production process, the controller of Nellysford Company believes that the bulk of variable maintenance cost is driven by either labor hours or machine hours. Data gathered for the past 24 months follows:

Required:
(1) Compute the correlation coefficient, r, and the coefficient of determination, r2, for maintenance cost with each of the two activity measures suggested by the controller.
(2) Using the method of least squares and the activity measure most highly correlated with maintenance cost, compute the variable maintenance cost rate and the estimated fixed maintenance cost.
(3) Compute the standard error of the estimate using the variable rate and estimated fixed cost computed in requirement 2.
(4) Compute the 95% confidence interval estimate at the 1,100-hour level of activity. Student's t value at the 95% level of confidence for a two-tail test is 2.074 for 22 degrees of freedom, 2.069 for 23 degrees of freedom, and 2.064 for 24 degrees of freedom.