The management of the Randolph Corporation has asked for help in the selection of the appropriate activity measure to be used in estimating electricity cost in one of its manufacturing plants. The following information about past expenses and two potential activity measures has been supplied:

Required:
(1) Compute the coefficient of correlation, r, and the coefficient of determination, r2, between the cost of electricity and each of the two activity measures.
(2) Identify which of the two activity measures should be used as a basis on which to estimate the allowable cost of electricity.
(3) Using the activity measure selected in requirement 2, compute an estimate of fixed electricity cost and the variable electricity rate by the method of least squares.

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Labor Hours 4,200 4,000 4,360 4,000 4,050 Month Cost S 1,600 1,570 1,610 1,550 1,530 1,540 1,520 1,530 1,580 1,650 Hours 2,300 2,150 2,400 January April. May 2,160 4.150 4,250 4,150 4,500 4,600 2,180 August September. October. 2,260 2,500 2,540 December.. Total $18,960