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	$4,250	$4,439
102	2,377	3,194
103	5,963	5,406
104	4,282	4,373
105	3,139	4,126
106	4,323	3,844
107	7,044	5,254
108	2,004	3,124
109	6,166	5,288
110	3,678	3,409
111	4,186	4,554
112	5,065	3,500
113	3,702	3,006
114	5,417	4,955
115	2,874	3,211
a. Use the high-low method to estimate the fixed and variable portions of store costs based on revenues. (Round variable cost percentage answer to 1 decimal place. Enter fixed cost answer in thousands of dollars.) b. Managers estimate that one of the proposed stores will have revenues of $4.0 million. What are the estimated monthly overhead costs, assuming no inflation? (Do not round variable cost percentage for your calculations. Round your intermediate calculations to the nearest whole dollar. Enter your answer in thousands of dollars.) c. Managers are also considering a “mega-store” with revenues of $25 million. What are the estimated monthly overhead costs, assuming no inflation? (Do not round variable cost percentage for your calculations. Round your intermediate calculations to the nearest whole dollar. Enter your answer in thousands of dollars.)

Answer 1