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 out 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	3,030		$	9,044
February	3,080		$	9,234
March	3,980		$	11,913
April	1,630		$	6,194
May	1,270		$	4,826
June	2,110		$	8,018
July	650		$	2,470
August	3,690		$	11,552
September	1,960		$	7,448
October	4,410		$	12,998
November	1,600		$	6,080
December	2,230		$	8,474

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)

Answer 1

Answer

Fixed Electricity Cost = $650 (Rounded off )

Variable cost of electricity per occupancy-day = $2.80 (Rounded off to two decimal)

Calculated as

	Units	Expense
High in October	4410	$                             12,998
Low in July	650	$                               2,470
Difference	3760	$                             10,528
Variable expense per unit =		Difference in Expense
		Difference in Units
Variable expense per unit =		10528	=	$                                          2.80
		3760
Fixed Cost	=	Total Cost at high units	-	Variable cost at high units
		12998	-	12348.00
		$                                                                                                650

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