Recall the analysis for Davis Stores in Exercises 5-39, 5-40, and 5-41. During a discussion of those results, 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 information on the number of employees and combined it with their original data.

                                    

Required
a. Use the high-low method to estimate the fixed and variable portions of store costs based on employees.
b. Use the results of your high-low analysis to estimate the cost for a store with 30 employees.
c. Prepare a scattergraph between store cost and employees.
d. Prepare an estimate of the cost of a store with 30 employees using the results from a simple regression of store cost on employees.
e. Prepare an estimate of the cost of a store with revenues of $2.5 million and 30 employees using the results of a multiple regression of store costs on store revenues and employees.
f. Comment on the results of the regression analyses in parts d and e.

Data From Exercises 5-39 & 5-40:

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):

Data From Exercise 5-41:

Simple regression results from the data of Davis Stores are as follows: