Question

Exercise 6-34 Estimating Cost Behavior by Multiple Methods (Appendix) (LO 6-1, 6-2, 6-5, 6-8)

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.

  

Month	Total Hours 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

Required:

1. 1-a. 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).

2. 1-b. What is the variable utility cost per hour of operation?

3. 3-a. Estimate the cost behavior for the store's utility cost. Express the cost behavior in formula form.

4. 3-b. What is the variable utility cost per hour of operation?

5. 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).

Answer 1