Davis Stores sells clothing in 15 stores located around the southwestern United States. The managers at Davis are considering expanding by opening new stores and are interested in estimating costs in potential new locations. They believe that costs are driven in large part by store volume measured by revenue. The following data were collected from last year’s operations (revenues and costs in thousands of dollars). StoreRevenuesCosts101$4,240$4,4241022,3673,1741035,9485,3911044,2624,3481053,1244,0961064,3033,8091077,0345,2391081,9893,0741096,1165,2481103,6483,3791114,1664,5291125,0403,4801133,6922,9761145,3774,9351152,8243,196 Requireda. Use the high-low method to estimate the fixed and variable portions of store costs based on revenues.b. Managers estimate that one of the proposed stores will have revenues of $3.9 million. What are the estimated monthly overhead costs, assuming no inflation?c. Managers are also considering a “mega-store” with revenues of $24 million. What are the estimated monthly overhead costs, assuming no inflation?

Calculation of Variable and Fixed cost: thousands of…

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Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

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Davis Stores sells clothing in 15 stores located around the southwestern United States. The managers at Davis are considering expanding by opening new stores and are interested in estimating costs in potential new locations. They believe that costs are driven in large part by store volume measured by revenue. The following data were collected from last year’s operations (revenues and costs in thousands of dollars).

Store	Revenues	Costs
101	$4,240	$4,424
102	2,367	3,174
103	5,948	5,391
104	4,262	4,348
105	3,124	4,096
106	4,303	3,809
107	7,034	5,239
108	1,989	3,074
109	6,116	5,248
110	3,648	3,379
111	4,166	4,529
112	5,040	3,480
113	3,692	2,976
114	5,377	4,935
115	2,824	3,196

Required

a. Use the high-low method to estimate the fixed and variable portions of store costs based on revenues.

b. Managers estimate that one of the proposed stores will have revenues of $3.9 million. What are the estimated monthly overhead costs, assuming no inflation?

c. Managers are also considering a “mega-store” with revenues of $24 million. What are the estimated monthly overhead costs, assuming no inflation?

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