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

T = $2025 + $0.19m

Step-by-step 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