Choosing Appropriate Activity Measure; Cost Behavior Analysis; Standard Error of the Estimate. Based on observation and knowledge of the production process, the controller of Whirlwind 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:

Maintenance Labor Machine Months Cost Hours Hours January,19A.

$1,195 950 809 February, 19A.

1,116 1,024 744 March,19A.

1,390 1,109 987 April,19A.

1,449 1,148 987 May,19A.

1,618 1,313 1,186 June,19A.

1,525 1,261 1,154 July,19A.

1,687 1,552 1,291 August,19A.

1,650 1,372 1,238 September, 19A.

1,595 1,366 1,186 October,19A.

1,675 1,455 1,246 November, 19A.

1,405 1,221 997 December, 19A.

1,251 1,150 841 January,19B.

950 999 502 February, 19B.

1,175 1,022 733 March,19B.

1,425 1,220 1,090 April,19B.

1,506 1,283 1,135 May,19B.

1,608 1,339 1,174 June,19B.

1,653 1,250 1,246 July,19B.

1,675 1,440 1,264 August,19B.

1,724 1,290 1,323 September, 19B.

1,626 1,335 1,230 October,19B.

1,575 1,164 1,165 November, 19B.

1,653 1,373 1,237 December, 19B.

1,418 1,124 1,035 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 lvalue at the 95% level of confidence for a two-tail test is 2.074 for 22 degrees of freedom, 2.069 fof 23 degrees of freedom, and 2.064 for 24 degrees of freedom.