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	3,250		$	9,660
February	3,470		$	10,185
March	3,660		$	10,360
April	1,760		$	6,160
May	1,350		$	4,725
June	4,350		$	11,575
July	3,280		$	9,765
August	1,610		$	5,635
September	700		$	2,450
October	1,300		$	4,550
November	1,640		$	5,740
December	2,220		$	7,770

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.checked
• Number of days present in a month.checked
• Income taxes paid on hotel income.unanswered
• Seasonal factors like winter or summer.checked
• Fixed salary paid to hotel receptionist.unanswered

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Answer 1

Electrical Costs
	Occupancy Days	Electrical Costs
High level of activity	4,350	$11,575
Low level of activity	700	$2,450
Change	3,650	$9,125
Variable cost per occupancy days =$9,125 / 3,650 =$2.50 per occupancy days
Fixed cost element =$11,575 - (4,350*$2.50) =$700
Y =$46,800 + $5.26x
Your answers to part 2 are correct.
Option no.3 and Option no.5 will not affect the variation to electrical costs as these are unavoidable Costs and
will be incurred irrespective of any change in the no. of guests or room occupied or any such activities