The controller of Stone Product Corporation has asked for help in the selection of the

appropriate activity measure to be used in estimating variable supplies expense for the

company's budget. The following information about past expense and two potential activity

measures has been supplied:

Month Supplies Exp. Labor hours Machine hours

January $1,500 3,900 2,100

February 1,400 4,200 2,000

March 1,600 4,200 2,100

April 1,550 3,950 2,000

May 1,450 3,800 1,950

June 1,450 3,900 2,000

July 1,500 4,200 2,050

August 1,550 4,300 2,100

September 1,650 4,250 2,400

October 1,550 4,300 2,300

Total $ 15,200 41,000 21,000

Required:

1. Compute the coefficient of correlation, r, and the coefficient of determination, r2 between supplies expense and each of the two activity measure.

2. Which of the two activity measures above should be used as a basis upon which to estimate the allowable supplies expense?

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

4. Using the activity measure selected in requirement (2) above, determine the fixed expense and the variable expense rate by the method of High and Low point