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 January February March April May June July August September October November December Occupancy-Days 540 3,810 4,100 1,730 3,520 1,320 3,420 4. 120 1,610 83e 1,420 2,320 Electrical Costs $1,620 $ 8,352 $ 8,736 $ 5,190 $ 7,968 $ 3.960 $ 2,568 $ 8.780 $ 4,830 2,490 $ 4,26e 6,960 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 1

Variable Cost of electricity Fixed cost of electricity $ $ 2.00 per occupancy-day 540 per month Working Notes : High-low Method : Varaible Cost Per Unit = (Hight electrical cost-low electrical cost) (High occupancy days- low occupancy days) = ($8.780-$1.620)/(4.120-540) = $7.160/3,580 = $2.00 Total Fixed Cost = Total electrical Cost - Varaible Cost = $1,620-540*S2) = $1,620-$1,080 = $540