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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

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 years operations (revenues and costs in thousands of dollars).

Store

Revenues

Costs

101

$4,150

$4,289

102

2,277

2,994

103

5,813

5,256

104

4,082

4,123

105

2,989

3,826

106

4,123

3,494

107

6,944

5,104

108

1,854

2,624

109

5,666

4,888

110

3,378

3,109

111

3,986

4,304

112

4,815

3,300

113

3,602

2,706

114

5,017

4,755

115

2,374

3,061

Required

a. Use the high-low method to estimate the fixed and variable portions of store costs based on revenues.

b. Managers estimate that one of the proposed stores will have revenues of $3.0 million. What are the estimated monthly overhead costs, assuming no inflation?

c. Managers are also considering a mega-store with revenues of $15 million. What are the estimated monthly overhead costs, assuming no inflation?

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