Star Video It is likely that a number of grocery stores in your town have video rental departments.

Generally, however, grocery stores do not focus much management attention on their small video rental businesses. The main purpose of having a video department is to encourage more customers to come into the store and purchase groceries! Nevertheless, a grocery store cannot simply buy a large selection of videotapes, corner off a section of floor space, and start renting tapes. Successfully managing a rental business requires being aware of an unimaginably large number of video titles. Obviously, new movies are constantly being released, while old movies gradually lose their appeal and are eventually scrapped. Further, large-scale video rental chains such as Blockbuster constantly track shifting consumer tastes for certain titles and movie categories. These consumer preferences differ based on demographic data like geographic location, average age, ethnicity, average income, etc. A grocery store really can’t manage all these data without losing focus on its main business. Hence, most grocery stores contract out their video rental business to a large-scale video management company. These management companies can purchase huge quantities of tapes, maintain large distribution warehouses, and track demographic data that allow them to manage and move specific inventories to the appropriate grocery store locations. In 1992, one such video management company, Star Video (not its real name), was managing 86 stores representing three supermarket chains in five states—Arizona, California, Montana, Washington, and Wyoming. Total revenue in 1992 for Star Video was $3.6 million. Star Video made all the inventory investments and handled all management activities involved in providing video rentals at each of the 86 stores. Video rental revenue was then split between Star Video and each grocery store, with Star Video keeping the lion’s share. Stores liked this arrangement because they made most of their money on grocery sales to customers who came to rent videotapes. Star Video needed to carefully manage revenue and costs at each store in order to stay profitable. Following are the data for six stores located in Washington:

Use the high-low method to analyze the operating expenses at these six stores. Determine if operating expenses are related to store revenue. What appear to be the fixed costs of operating each store? Create a graph and plot these costs using revenue on the horizontal axis and operating expenses on the vertical axis. Does the scattergraph agree or disagree with the results of your high-low analysis?

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Store Name Moses Lake W. Kennewick Pasco. S. Kennewick E. Wenatchee Richland Total $ 6,408 Monthly Monthly Revenue Operating Expenses $ 3,295 4,264 2,289 4,038 2,270 3,692 2,142 1,395 1,316 2,104 1,516 $21,901 $12,828