Question

Gator Beach Marts, a chain of convenience grocery stores in the Fort Lauderdale area, has store hours that fluctuate from month to month as the tourist trade in the community varies. The utility costs for one of the company’s stores are listed below for the past six months.

  

Month	Total Hours of Operation			Total Utility Cost
January		550		$	1,620
February		600			1,700
March		700			1,900
April		500			1,600
May		450			1,350
June		400			1,300

Required:

1-a. Use the high-low method to estimate the cost behavior for the store’s utility costs. Express the cost behavior in formula form (Y= a + bX).

Monthly utility cost =

1-b. What is the variable utility cost per hour of operation?

3-a. Construct an Excel spreadsheet and use the Excel commands to perform a least-squares regression. Estimate the cost behavior for the store's utility cost. Express the cost behavior in formula form.

3-b. What is the variable utility cost per hour of operation?

4. During July, the store will be open 300 hours. Predict the store’s total utility cost for July using each of the cost-estimation methods employed in requirements (1) and (3).

Answer 1

1-a
Variable cost per unit = ($1900-1300)/(700-400) = $2 per hour
Fixed Cost = $1900 - 700 x 2 = $500
Y = $500 + 2 X

1-b
Variable utility cost per hour = $2

3-a

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.97559
R Square	0.951776
Adjusted R Square	0.93972
Standard Error	54.90902
Observations	6
ANOVA
	df	SS	MS	F	Significance F
Regression	1	238023.3	238023.3	78.94638	0.000886
Residual	4	12060	3015
Total	5	250083.3
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	501	123.3054	4.063083	0.01531	158.6494	843.3506	158.6494	843.3506
Total Hours of Operation	2.02	0.227345	8.885178	0.000886	1.388789	2.651211	1.388789	2.651211

Y = 501 + 2.02 X

3-b
Variable cost per hour = $2.02 per hour

4
(1) Total Cost = $500 + 300 x $2 = $1100

(2) Total Cost = $501 + 300 x $2.02 = $1107