Question

Exercise 6-34 Estimating Cost Behavior by Multiple Methods (Appendix) (LO 6-1, 6-2, 6-5, 6-8) 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. Total Hours of Month Operation January 550 February bruary 600 March 700 April 500 May 450 June 400 Total Utility Cost $1,620 1,700 1,900 1,600 1,350 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). 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). Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req ЗА Req 3B Req 4 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).

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