Total Hours Month 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
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.
Required:
1. 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). What is the variable utility cost per hour of operation?
2. Draw a scatter diagram of the store’s utility costs. Visually fit a cost line to the plotted data. Estimate the variable utility cost per hour of operation.
3. Build a spreadsheet: 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. 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), (2), and (3).
5. Use your Excel sheet from requirement (3) to calculate and interpret the R2 value for the regression.
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