Total electricity expense for the past 20 months is $42,000, an activity measure upon which to base estimates of electricity expense is needed. The two activity measures being considered are "direct labor hours" and "machine hours". Direct labor hours for the period totaled 180,000, and machine hours totaled 120,000. The direct labor hour differences from average multiplied by the electricity expense differences from its average and summed [( - ) ( - )] is 5,700. The direct labor hour differences from average squared and summed [( - ) 2 ] is 28,500. The electricity expense differences from average and summed [( - ) 2 ] is 1,264. The machine hour differences from average multiplied by the electricity expense differences from its average and summed [( - ) ( - )] is 7,000. The machine hour differences from average squared and summed [( - ) 2 ] is 50,000.

Required: 1. Compute the coefficient of correlation, r, and the coefficient of determination, r2 , for direct labor hours and electricity expense.

2. Compute the coefficient of correlation, r, and the coefficient of determination, r2 , for machine hours and electricity expense.

3. Which activity measure should be used for the estimation of fixed and variable electricity expense? Explain.

4. Compute the variable electricity expense rate and the fixed expense, using the method of least squares.