P$6-6$A$.$ Least Squares Regression Analysis The management of Digger Inc., is trying to develop a cost

formula for its major manufacturing overhead activities. Digger's manufacturing process is highly au$-$

tomated and power costs are a significant manufacturing cost. Cost analysts have decided that power

costs are mixed. The costs must be separated into their fixed and variable components so that the cost

behavior of the power usage activity can be better understood. Analysts have determined that machine

hours drive power usage; thus, machine hours are the cost driver for power costs. Nine months of data

have been collected and are presented in the chart below:

Note: For the following requirements, round the variable cost per unit to the nearest cent and the total

fixed cost to the nearest dollar.

Required

a$.$ Use the high and low points to estimate a power cost formula.

b$.$ Use the method of least squares in Excel $($or a similar computer program$)$ to estimate a power

cost formula.

c$.$ Evaluate $R_2$ from requirement $b.$ Are machine hours a good predictor of power costs?