Question

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. During a discussion, one of the managers suggests that number of employees might be better at explaining cost than store revenues. As a result of that suggestion, managers collected the following information from last year's operations (revenues and costs in thousands of dollars): Employees 37 Store 101 102 103 104 105 106 107 Costs $5,031 5,935 4,172 3,146 3,155 2,219 3,514 5,758 2,468 2,597 5,151 3,867 4,905 2,008 2,769 Revenues $3,118 3, 306 4,583 4,232 6,560 2,147 5,041 2,372 5,672 2,583 3,296 3, 274 4,283 4,449 3,737 108 109 110 111 un Problem 5-68 (Algo) Parte e-1. Enter the regression coefficients. e-2. Estimate the cost of a store with revenues of $2.40 million and 55 employees using the results of a multiple regression of store costs on store revenues and employees. Complete this question by entering your answers in the tabs below. Reg E1 Reg E2

Answer 1

E1:

Intercept	438.0
Revenue	-0.09
Employees	100.3

E2: Revenue = $2.40 million or $2,400 thousand.

No. of employees = 55

Thus cost = 438 + (-0.09*2400) + (100.3*55)

= $5,738.5 thousand or $5.7385 million

It can be rounded off to $5.74 million (2 decimal place) or $5.7 million (1 decimal place)

If the excel output are not rounded off then the answer will be $5,740.3 thousand or $5.74 million (2 decimal place) or $5.7 million (1 decimal place)

Calculations and explanations:

In this case cost is the “y” variable, no. of employees is the “x1” variable, and revenue is the “x2” variable.

In excel go to ‘data’, then ‘data analysis’ and then select ‘regression’. The output will be:

	Coefficients	Standard Error
Intercept	438.0	1232.393962
x1 (employees)	100.3	22.08056382
x2 (revenues)	-0.09	0.183643513