2 Choosing Appropriate Activity Measure; Cost Behavior Analysis. The controller of Pitzky Corporation has asked for help in the selection of the appropriate activity measure to be used in estimating variable supplies cost for the company’s budget. The following information about past expenses and two potential activity mea¬ sures has been supplied:

Month Supplies Cost Labor Hours Machine Hours January.

$ 1,505 5,000 2,000 February.

1,395 4,600 1,990 March.

1,565 5,160 2,140 April.

1,515 5,100 2,080 May.

1,445 4,830 1,960 June.

1,415 4,750 1,940 July.

1,465 4,900 2,020 August.

1,505 5,080 1,990 September.

1,575 5,200 2,140 October.

1,535 5,130 2,050 November.

1,500 4,950 2,030 December.

1,580 5,300 2,260 Total.

$18,000 60,000 24,600 Required:

(1) Compute the coefficient of correlation, r, and the coefficient of determination, r2, between supplies cost and each of the two activity measures.

(2) Identify which of the two activity measures should be used as a basis upon which to estimate the allowable supplies cost.

(3) Using the activity measure selected in requirement 2 above, determine the fixed cost and the variable cost rate by the method of least squares.