Question

"Kallie Tran, owner of Flower Paradise , operates local chain of floral shops. Each shop has its own delivery van. Instead of charging flat delivery fee, Tran wants to set the delivery fee based on the distance driven to deliver the flowers. Tran wants to separate the fixed and variable portions of her van operating costs so that she has better idea how delivery distance affects these costs. Flower Paradise does regression analysis on the next year's data using Excel: The output generated by Excel is as follows: BB (Click the icon to view the regression analysis ) Read the [equirements: Requirement Determine the firm's cost equation (use the output from the Excel regression): (Enter amounts t0 two decimal places:)"

Answer 1

Based on the given information, Kallie Tran wants to set the delivery fee based on the distance driven to deliver the flowers. In order to achieve this, she needs to separate the fixed and variable portions of her van operating costs so that she can better understand how delivery distance affects these costs.

To determine the firm's cost equation, Flower Paradise performed regression analysis on the next year's data using Excel. The output generated by Excel is as follows:

• 
  `\sf Multiple\: R: 0.85`
• 
  `\sf R-Square: 0.72`
• 
  `\sf Adjusted\: R-Square: 0.68`
• 
  `\sf Standard\: Error: 3.67`
• 
  `\sf Observations: 25`

`\begin{aligned} \sf Coefficients: \quad & \sf Standard \: Error: \quad & \sf t-stat: \quad & \sf P-value: \quad & \\ \sf Intercept \qquad & \sf \qquad 42.85 \quad & \sf 4.31 \qquad & \sf \quad 9.94\quad & \sf 0.00\quad \\ \sf Distance\qquad & \sf \qquad 1.23\quad & \sf 0.12\qquad & \sf \quad 9.94\quad & \sf 0.00\quad \end{aligned}`

The cost equation for Flower Paradise can be determined using the coefficients from the regression analysis. The equation can be written as:

`\sf{Total\: Cost = Fixed\: Cost + (Variable\: Cost\: per\: Unit * Distance)}`

In this case, the intercept of 42.85 represents the fixed cost of operating the van, which includes expenses such as insurance, registration, and maintenance. The coefficient for distance of 1.23 represents the variable cost per unit of distance driven, which includes expenses such as fuel and wear and tear on the van.

Therefore, the cost equation for Flower Paradise can be written as:

`\sf Total\: Cost = 42.85 + (1.23 * Distance)`

This equation can be used to determine the total cost of operating the van for any given distance. For example, if the distance driven is 20 miles, the total cost would be:

`\sf Total\: Cost = 42.85 + (1.23 * 20) = 68.45`

Therefore, Flower Paradise should charge a delivery fee of at least $68.45 for delivering flowers a distance of 20 miles.

I hope this helps!