Question

The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented for one day. The hotel’s business is highly seasonal, with peaks occurring during the ski season and in the summer.

Month	Occupancy-Days		Electrical Costs
January	3,400		$	9,536
February	4,150		$	10,180
March	3,080		$	9,184
April	2,230		$	7,136
May	1,570		$	5,024
June	1,910		$	6,112
July	3,880		$	9,997
August	3,830		$	9,904
September	2,060		$	6,592
October	1,940		$	6,208
November	1,050		$	3,360
December	2,710		$	8,168

Required:

1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. (Do not round your intermediate calculations. Round your Variable cost answer to 2 decimal places and Fixed cost element answer to nearest whole dollar amount.)

2. What other factors in addition to occupancy-days are likely to affect the variation in electrical costs from month to month? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

• Systematic factors like guests, switching off fans and lights.unchecked
• Number of days present in a month.unchecked
• Income taxes paid on hotel income.unchecked
• Seasonal factors like winter or summer.unchecked
• Fixed salary paid to hotel receptionist.

Answer 1

Variable Cost = Differece in cost / Difference in Days Fixed cost = Cost-(Days*Variable Cost) Cost Equation = Fixed Cost +Days * Varaible cost Per Day Estimate the costs with High-Low Method Occupancy days Electrical cost High level of Activity Feb 4150 10180 low level of Activity Nov 1050 3360 Change 3100 6820 Answer Varaible cost 6820/3100 2.20 Per day Fixed Cost (10180-(4150*2.20) 1050 Per Month Other Factors need to consider 1.Systamateic Factors like Guests, Switching off Fans and lights 2.Seasonal Factors like winter and Summer 3.Number of Days Present in a Month