A. Determine whether the costs incurred by

The Daily Grind are fixed, variable (with

respect to number of cups of coffee sold),

or mixed.

B. Use regression analysis and the high/low

method to calculate the monthly fixed cost

and the variable component of the utility

expenses incurred by The Daily Grind. Use

cups of coffee sold as the independent variable

and utility expense as the dependent variable

in your regression analysis. After calculating

both numbers, round your final answers to two

decimal places.

C. Compare the regression results with the high/low

results. Which model would you suggest?

Material Cost

A company uses a specialty brand of Kona coffee beans costing $8 per pound. Each pound of coffee beans produces 256 ounces of coffee. Coffee is sold in three sizes: a small cup holding 8 ounces, a medium cup holding 12 ounces, and a large cup holding 16 ounces.

The cups needed to serve the coffee cost $.05 for the small cup, $.06 for the medium cup, and $.07

for the large cup. Lids cost $.03 per cup and are the same regardless of cup size. Sleeves cost an additional $.04 per cup. On average, sugar and cream cost $.02 per cup for small cups, $.03 for medium cups, and $.04 for large cups.

Labor Cost

The Daily Grind is open 12 hours each day, 7 days a week (365 days per year), and is staffed with three employees during the morning shift (7:00