Plyler Plastics Company produces a variety of custom plastics products for a worldwide clientele. The company's cost accounting manager, Martha Johns, is beginning to implement an activity-based costing system and has gathered data on the quality inspections activity. She is unsure what the most appropriate driver is for this activity cost pool, but she is considering number of units produced, number of batches produced, machine hours, and direct labor hours. She has gathered weekly information for the past two years and has asked you to help her determine which activity driver to select.

Required

a. Using the activity cost pool and activity driver data, prepare a scatterplot for each potential activity driver. What do you notice about the appropriateness of each as the selected driver for assigning inspections costs to products under the new activity-based costing system?

b. Using Excel's CORREL formula, determine the correlation between each activity driver level and the inspections cost.

c. Using Excel's RSQ formula, determine how much of the variation in activity costs each activity driver explains.

d. Based on your analysis, which activity driver do you recommend? Why?

e. Assuming the past two years represent the expected level of costs and activity for the coming year, what activity cost rate for quality inspections should be used to assign costs to products in the coming year? The Excel data files for answering this problem can be found in WileyPLUS.