Parsons Company's total maintenance cost for the past 10 months is $50,000. Some of the maintenance activity appears related to the operation of machinery, and the accountant wants to determine whether machine hours should be used as a basis upon which to estimate maintenance cost at various levels of capacity. Machine hours for the same period totaled 40,000 hours. The machine hour differences from average multiplied by the maintenance cost differences from its average and summed [∑(xi - )(yi - )] is 2,400. The machine hour differences from average squared and summed [∑(xi - )2] is 6,250, and the maintenance cost differences from average squared and summed [∑(yi - )2] is 1,000.
Required
(1) Compute the coefficient of correlation, r, and the coefficient of determination, r2, for maintenance cost and machine hours.
(2) Compute the variable maintenance cost per machine hour, using the method of least squares.
(3) Compute the fixed maintenance cost, using the method of least squares.