(Solved by Humans)-PROBLEM 3A–5 Least-Squares Regression Analysis; Pricing Decision [LO4] Tom Davis runs a guiding...

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  PROBLEM 3A–5 Least-Squares Regression Analysis; Pricing Decision [LO4]                     Tom Davis runs a guiding company, Chief Adventures, based in Squamish, British Columbia, that takes customers on guided tours 12 months a year. During peak season, Davis employs up to 30 guides, all of whom are paid on an hourly basis at an average rate of $20 per hour. While there is some variation, tours are typically three hours in length. Chief Adventures has consid- erable fixed costs, including insurance, vehicle rentals, property taxes on its office building and warehouse, provincial licensing fees, utilities, wireless communications, administrative staff, and advertising. Each guided tour also results in variable costs, such as snacks for the customers, tour booklets, and other minor expenses. Other than the wages paid to guides, Tom has been recording all of these other fixed and variable costs as guiding expenses. For planning purposes, Tom would like to be able to separate the variable and fixed com- ponents of guiding expenses. He thinks that the variable costs related to each guided tour are likely to be closely related to the number of customers served during a month. To begin the analysis Tom has compiled monthly data for 2014 below. Note: The guiding expenses exclude the hourly wages paid to guides.     Month Number of Customers Guiding Expenses January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 $ 44,000 February. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,680 47,400 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800 48,000 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . 2,520 51,400 May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700 53,600 June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300 56,800 July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,900 59,400 August. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500 61,600 September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200 60,000 October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700 54,600 November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,860 49,600 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3,900    58,400 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   . 34,560 $644,800     www.tex-cetera.com       Required: 1.              Prepare a scattergram that plots the number of customers on the X-axis and guiding ex- penses on the Y-axis. What insights are revealed by your scattergram? 2.              Is it economically plausible for variable guiding expenses to be related to the number of customers? Explain. 3.              Use the least-squares regression method to estimate the fixed and variable components of guiding expenses. 4.              Assume that a small group of six tourists wants to go on a three-hour tour that will re- quire two guides. What is the minimum amount Chief Adventures can charge the group to cover the variable expenses of the tour? (CMA, adapted)