question archive In order to precisely decompose the weekly wage costs of Restaurant 241 into fixed and variable components, regression analysis was used
In order to precisely decompose the weekly wage costs of Restaurant 241 into fixed and variable components, regression analysis was used
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In order to precisely decompose the weekly wage costs of Restaurant 241 into fixed and variable components, regression analysis was used. The estimates produced the equation below. Answer the following questions according to the regression output. (Again, assume there are only 4 weeks!)
Data used for week 1~4: Y = Weekly Wage Cost, X = Weekly Sales Revenue
Regression Output: Y = 500 + 0.2 X
- What is the variable wage cost per dollar of revenue? (2 points)
- What is the fixed wage cost for October? (Hint: fixed cost for the whole month) (2 points)
- If the sales revenue on a given week was 2,000 dollars, what is the total wage cost for that week? (2 points)
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Data used for week 1~4:
Y = Weekly Wage Cost,
X = Weekly Sales Revenue
Regression Output: Y = 500 + 0.2 X
here,
- Weekly fixed wage cost = 500
- 0.2 is indicating proportion of weekly wage cost in weekly sales revenue.
Calculation of variable wage cost per dollar of revenue
= i.e. 0.2
Calculation of fixed wage cost for October
= Weekly fixed wage cost × 4
= 500 × 4
= 2000
Calculation of total wage cost (Y) for that week if the sales revenue on a given week was 2,000 dollars
Y = 500 + 0.2 X
Y = 500 + 0.2 × 2000
Y = 900
