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:

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?

Utilities Quarter Mined Labor-Hours Cost Year 1: Second Third Fourth 15,000 11,000 21,000 12,000 5,000 3,000 4,000 6,000 $50,000 $45,000 $60,000 $75,000 Year 2: First Second Third 18,000 10,000 9,000 8,000 $100,000 $105,000 $85,000 $120,000 2 25,000 30,000