Tom Snider is a staff accountant for BigBiz. Snider was recently given the task of developing a monthly flexible budget formula for several manufacturing costs. He was told that his equations would be used as an aid in developing future budgets for these manufacturing costs and he was told to put his results into an equation in the form y = a + bX for each cost. Snider gathered data and used high–low analysis to obtain the flexible budget formulas. Rather than using a single activity measure, he decided to use two. Thus, for each manufacturing cost analyzed, he developed two equations. However, after analyzing several equations, Snider became perplexed over his results because the results from the two equations were very different in some cases. Snider has asked you, his colleague, how he should decide which of the two estimated equations for each manufacturing cost he should submit to his boss.
To illustrate his dilemma, Snider provided you with his two equations for repairs and maintenance expense, which follow.
Using machine hours: y = $15,000 + $20X
Using direct labor hours: y = $450,000 + $4X
What advice will you give Snider?