Question

please help

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) Store 101$ 102 103 104 105 106 107 108 109 110 111 112 113 114 115 Costs 4,214 2,894 5,181 3,998 3,676 3,319 5,029 2,374 4,688 2,959 4,179 3,200 2,556 4,655 2,986 Employees 395 29 47 38 33 38 54 26 44 35 37 41 35 42 28 Revenues 4,100 2,227 5,738 3,982 2,914 4,023 6,894 1,779 5,416 3,228 3,886 4,690 3,552 4,817 2,124

Answer 1

a)

Variable Cost Per Unit = (Highest Activity Cost – Lowest Activity Cost)/(Highest Activity Units – Lowest Activity Units)

=(5029-2374)/(54-26) = 94.8214

Fixed Cost = Highest Activity Cost – (Variable Cost Per Units x Highest Activity Units)

=5029-(94.8214*54) = -91.3556

b)

Cost of store with 30 employees = (30*94.8214) + (-91.3556) = 2753.2864