(High-low; least squares regression; scattergraph) Kemp Industries manufactures screens for residential and commercial applications. The firm has encountered a problem in budgeting utilities expense. The expense is apparently a mixed cost and varies most directly with machine hours worked. However, management does not know the exact relationship between machine hours and utilities ex¬ pense. The following data have been gathered from recent operations and may help describe the relationship.

a. How can you tell from the data that utilities expense is a mixed cost?

b. Prepare a scattergraph. Does the scattergraph indicate utilities expense is a mixed cost?

c. Use the high-low method to estimate a cost formula for utilities expense.

d. Use least squares regression to estimate a cost formula for utilities expense.

e. Does the answer to part c or d provide the better estimate of the relationship between utilities expense and machine hours? Why?LO1

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MONTH MACHINE HOURS January 1,400 UTILITIES EXPENSE $ 9,000 February 1,700 9,525 March 2,000 10,900 April 1,900 10,719 May 2,300 11,670 June 2,700 13,154 July 2,500 13,000 August 2,200 11,578