The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed. The costs must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past 8 quarters have been collected:

Quarter Machine Hours Power Cost 1 20,000 $26,000 2 25,000 38,000 3 30,000 42,500 4 22,000 37,000 5 21,000 34,000 6 18,000 29,000 7 24,000 36,000 8 28,000 40,000 Note: For the following requirements, round the fixed cost to the nearest dollar, round the variable rates to three decimal places, and the R to two decimal places. Required: 1. Prepare a scattergraph by plotting power costs against machine hours. Does the scattergraph show a linear relationship between machine hours and power cost? 2. Using the high and low points (i.e., the high-low method), compute a power cost formula. (Note: Round variable rate to three decimal places.) Total power cost = X + ($ X x Number of machine hours) 3. Use the method of least squares to compute a power cost formula. Evaluate the coefficient of determination. Variable rate (to two decimal places) per machine hour Fixed cost to the nearest dollar) Coefficient of determination (R) (to one decimal place). %