The Hard Rock Mining Company is developing cost formulas for management planning and decision-making purposes. The company€™s cost analyst has concluded that utilities cost is a mixed cost, and he is attempting to find a base with which the cost might be closely correlated. The controller has suggested that tons mined might be a good base to use in developing a cost formula. The production superintendent disagrees; she thinks that direct labor-hours would be a better base. The cost analyst has decided to try both bases and has assembled the following information:

Required:
1. Using tons mined as the independent (X) variable:
a. Determine a cost formula for utilities cost using the least-squares regression method. (The variable cost you compute will be in thousands of tons. It can be left in this form, or you can convert your variable cost to a per ton basis by dividing it by 1,000.)
b. Prepare a scattergraph and plot the tons mined and utilities cost. (Place cost on the vertical axis and tons mined on the horizontal axis.) Fit a straight line to the plotted points using the cost formula determined in (a) above.
2. Using direct labor-hours as the independent (X) variable, repeat the computations in (a) and (b) above.
3. Would you recommend that the company use tons mined or direct labor-hours as a base for planning utilitiescost?

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Direct Tons Mined Labor-Hours Utilities Quarter 000) (000) Year 1: First Second Third Fourth. . $50,000 $45,000 $60,000 $75.000 15 21 12 Year 2: First Second. Third Fourth.. 18 25 30 28 10 $100,000 $105,000 $85,000 $120,000