The Hard Rock Mining Company is developing cost formulas for
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:
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Required:
1. Using tons mined as the independent variable, prepare a scatter-graph that plots tons mined on the horizontal axis and utilities cost on the vertical axis. Determine a cost formula for utilities cost using least-squares regression. Express this cost formula in the form Y = a + bX.
2. Using direct labor-hours as the independent variable, prepare a scatter-graph that plots direct labor-hours on the horizontal axis and utilities cost on the vertical axis. Determine a cost formula for utilities cost using least-squares regression. Express this cost formula in the form Y = a + bX.
3. Would you recommend that the company use tons mined or direct labor-hours as a base for planning utilitiescost?
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