Christina Mitchell, owner of Beautiful Arrangements, operates a local chain of flower shops. Each shop has its
Question:
Christina Mitchell, owner of Beautiful Arrangements, operates a local chain of flower shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Ms. Mitchell wants to set the delivery fee based on the distance driven to deliver the arrangements. Ms. Mitchell gives you this set of data from the last seven months:
Month. Van Operating Costs Miles Driven
January $5,460 15,800
February 5,748 17,300
March 4,935 14,600
April 5,310 16,000
May 5,830 17,100
June 5,420 15,400
July 5,020 14,500
February and May are Beautiful Arrangements’ biggest months due to Valentine’s Day and Mother’s Day.
A. Plot the data (scatter graph in Excel).
B. Use high-low method to determine the cost equation for van operating costs.
C. Use your results to predict costs at a volume of 15,000 miles.
D. Use Excel to determine the cost equation.
E. Determine the R-square for the excel cost equation. What does the R-square say about this equation?
F. Predict the costs again at 15,000 miles
G. Compare the two cost equations you generated.
H. How might you find the amount of a reasonable flat fee to charge instead?