Davis Stores sells clothing in 15 stores located around the southwestern United States. The managers at Davis are considering expanding by opening new stores and are interested in estimating costs in potential new locations. They believe that costs are driven in large part by store volume measured by revenue. The following data were collected from last year's operations (revenues and costs in thousands of dollars): Store 101 102 103 104 105 106 107 108 Revenues $4,300 2,427 6,038 4,382 3,214 4,423 7,094 2,079 6,416 3,828 4,286 5,190 3,752 5,617 3,124 Costs $4,514 3,294 5,481 4,498 4,276 4,019 5,329 3,374 5,488 3,559 4,679 3,600 3,156 5,055 3,286 Exercise 5-39 Methods of Estimating Costs: High-Low (LO 5-4) Required a. Use the high-low method to estimate the fixed and variable portions of store costs based on revenues. (Round variable cost percentage answer to 1 decimal place. Enter fixed cost answer in thousands of dollars.) Variable cost Fixed cost b. Managers estimate that one of the proposed stores will have revenues of $4.5 million. What are the estimated monthly overhead costs, assuming no inflation? (Do not round variable cost percentage for your calculations. Round your intermediate calculations to the nearest whole dollar. Enter your answer in thousands of dollars.) Store costs c. Managers are also considering a "mega-store" with revenues of $30 million. What are the estimated monthly overhead costs, assuming no inflation? (Do not round variable cost percentage for your calculations. Round your intermediate calculations to the nearest whole dollar. Enter your answer in thousands of dollars.) Store costs Required: Prepare a scattergraph based on the store cost and revenue data 1. On the graph below, use the point tool to plot the point corresponding to revenues and costs (Store 1). 2. Repeat the same process for the plotter tools (Store 2, Store 3,....). 3. To enter exact coordinates, double click on the point and enter the exact co-ordinates of x and y. Methods of Estimating Costs-Scattergraph Davis Stores Store 1 6000 O Store 2 5000 Store 3 1000 Costs ($000) Store 4 Store 5 1000 Store 6 04 o 1000 2000 3000 4000 5000 6000 7000 8000 Store 7 Revenue ($000) reset Simple regression results from the data of Davis Stores are as follows: Equation: Store costs = $2,121.4 + (Revenue x 48.0%) Statistical data Correlation coefficient 0.823 0.678 R2 Required: a. Estimate store costs for a store with revenue of $4.5 million. (Enter the answer in thousands of dollars. Round your answer to 2 decimal places.) Store cost b. What percentage of the variation in store costs is explained by the independent variable? (Enter answer as a percentage rounded to 1 decimal place.) Percentage of variation in store cost
