Question

Kelly Woo, owner of Rose Red, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Woo wants to set the delivery fee based on the distance driven to deliver the flowers. Woo wants to separate the fixed and variable portions of her van operating costs so that she has a better idea how delivery distance affects these costs. She has the following data from the past seven months.
Requirement
1. Determine the company's cost equation (use the output from the Excel regression) (Round the amounts to two decimal places.)
Each shop has its own delivery van. Instead of chargi deliver the flowers. Woo wants to separate the fixed and variable portions of her se costs. She has the following data from the past seven months: 1 Data Table Miles Driven 15,500 17,500 14,400 16,400 16,900 15,300 13,500 Van Operating Costs $5,400 $5,350 $4,980 $5,280 $5,580 $5,010 $4,590 Month January February. March April May. June July Print Done 13.
Determine R square.

Answer 1

Answer:

T = $2025 + $0.19m  

Explanation:

Let's sort out this data given:

Month          Miles Driven .                 Van Operating Cost (USD)

Jan                15500                                5400

Feb               17500                                 5350

Mar               14400                                 4980

Apr               16400                                 5280

May               16900                                5580

Jun                15300                                5010

Jul                 13500                                4590

Now, we are ready to go:

Let me tell you that, in order to find the company's cost equation, we need two things: One is variable cost and other is fixed cost. Let's find these two costs.

First of all, we have to calculate the variable cost:

For variable cost, we need to apply the High -Low Method.

For, High-Low method, we need highest values and least values.

So, As we can see, in miles driven in February is highest and it is lowest in July.

Month               Miles Driven .                 Van Operating Cost (USD)

Feb                     17500                              5350

Jul                       13500                              4590

Difference          4000                                760

So, the formula for variable cost is:

Variable Cost = Difference of Cost/ Difference of Miles

Variable Cost = 760/4000

Variable Cost = 0.19 USD

Now, we have to calculate the fixed cost:

So, for fixed cost, take any month from highest or lowest and its readings, Let's take july month.

Cost = 4590 and miles driven = 13500

Fixed Cost = 4590 - (13500 x Variable Cost)

Fixed Cost = 4590 - (13500 x 0.19)

Fixed Cost =  2025 USD

Now, we do have both the costs: Fixed cost and Variable cost.

So, for total company's cost, our equation will be:

Total Cost = Fixed Cost + Variable Cost

Total Cost = Fixed Cost + (Miles Driven x Variable Cost per mile)

Let's denote Total Cost = T

Fixed Cost = F

Variable Cost = V

Miles Driven = m

So, the Equation will be:

T = F + V

T = F + (m x V)

Let's plug in the values:

T = $2025 + $0.19m

So, this is the company's Cost equation.

Let's test this equation. Calculate the cost at 19000 miles driven.

m = 19000 miles driven

T = $2025 + ($0.19 x 19000)

T = $5635