Estimate the fixed and variable portions of store costs

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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. The following data were collected from last year's operations (revenues and costs in thousands of dollars).

Store

Revenues

Costs

101

$4,190

$4,349

102

2,317

3,074

103

5,873

5,316

104

4,162

4,223

105

3,049

3,946

106

4,203

3,634

107

6,984

5,164

108

1,914

2,824

109

5,866

5,048

110

3,498

3,229

111

4,066

4,404

112

4,915

3,380

113

3,642

2,826

114

5,177

4,835

115

2,574

3,121

Required -

a. Use the high-low method to estimate the fixed and variable portions of store costs based on revenues.

b. Managers estimate that one of the proposed stores will have revenues of $3.4 million. What are the estimated monthly overhead costs, assuming no inflation?

c. Managers are also considering a "mega-store" with revenues of $19 million. What are the estimated monthly overhead costs, assuming no inflation?

Reference no: EM133175465

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