Company’s cost analysis has concluded that utilities cost is a mixed cost, and they are attempting to find a base which the cost might be closely correlated.
Quarter: Tons Mixed Direct Labor Hours Utilities Cost
First 15,000 5,000 $50,000
Second 11,000 3,000 $45,000
Third 21,000 4,000 $60,000
Fourth 12,000 6,000 $75,000
First 18,000 10,000 $100,000
Second 25,000 9,000 $105,000
Third 30,000 8,000 $85,000
Fourth 28,000 11,000 $120,000
Using tons mined as the independent x variable:
1.Determine a cost formula for utilities cost using the least squares regression method.
2. 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 by (1)
3. Using the direct labor hours as the independent (x) variable, repeat the computations in (1) and (2) above
4.WOuld you recommend that the company use tons mined or direct labor hours as a base for planning utilities cost?