Three Methods of Cost Behavior Analysis; Correlation Analysis; Standard Error of the Estimate, a company making tubing from aluminum billets uses a process in which the billets are heated by induction to a very high temperature before being put through an extruding machine that shapes the tubing from the heated billets. The inducer, a very large coil into which the billet is placed, must sustain a great flow of electric current to heat the billets to the necessary temperature. Regardless of the number of billets to be processed, the coil is kept on during the entire operating day because of the time involved in starting it up. The Cost Accounting Department wants to charge the variable electricity cost to each billet and the fixed electricity cost to factory overhead. The following data have been assembled:

Number Cost of Month of Billets Electricity January.

2,000

$ 455 February.

1,800 450 March.

1,900 435 April.

2,200 485 May.

2,100 470 June.

2,000 475 July.

1,400 400 August.

1,900 450 September.

1,800 435 October.

2,400 500 November.

2,300 495 December.

2,200 470 Total.

24,000

$5,520 Required:

(1) Determine the fixed and variable elements of the electricity cost, using each of the following methods:

(a) the high and low points method

(b) a scattergraph with trend line fitted by inspection

(c) the method of least squares

(2) Compute the coefficient of correlation, r, and the coefficient of determination, r2.

(3) Compute the standard error of the estimate, and the 95% confidence interval for electricity cost at the 2,200- billets level of activity.