Choosing Appropriate Activity Measure; Cost Behavior Analysis. The management of the kxr Corporation has asked for help in the selection of the appropriate activity measure to be used in estimating electricity cost in one of its manufacturing plants. The following information about past expenses and two potential activity mea¬ sures has been supplied:

Electricity Labor Machine Month Cost Hours Hours January.

$1,600 4,200 2,300 February.

1,570 4,000 2,150 March.

1,610 4,360 2,400 April.

1,550 4,000 2,250 May.

1,530 4,050 2,160 June.

1,540 4,100 2,240 July.

1,520 4,150 2,180 August.

1,530 4,250 2,170 September.

1,580 4,150 2,260 October.

1,650 4,500 2,500 November.

1,660 4,600 2,540 December.

1,620 4,400 2,450 Total.

$18,960 50,760 27,600 Required:

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

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

(3) Using the activity measure selected in requirement 2, compute an estimate of fixed electricity cost and the variable electricity rate by the method of least squares.