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. Occupancy-Days Electrical Costs January February March April Kay June July August September October November 2,830 3,340 3,650 1,840 750 1,830 3,890 1,700 4, 060 2,260 1,350 290 6,750 $7,410 s 7,905 s 5,520 s 2,250 s5,490 8,190 5,100 8,410 6,780 4,050 870 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 declmal places and Fixed cost element answer to nearest whole dollar amount.) Vañiable cost of electricity Fixed cost of electricity per occupancy-day per month

Answer 1

Ans:

1. Calculation of Fixed and Variable cost of Electricity:(using High low Method)

Variable Cost = (Cost at High Level - Cost at Low Level) / (Occupancy at High Level - Occupancy at Low level)

Given, Cost at High Level = In September $8,410 Occupancy 4,060, Cost at Low level = December $870 Occupancy 290

VC = ($8,410 - $870) / (4,060 - 290) = $2

Variable cost Per occupancy Day = $2

Fixed cost = Total cost – Variable cost

Use September Month data for calculation of fixed cost

Fixed Cost = $8,410 - $2 x 4,060 = $290

Fixed Cost = $290

2. Systematic Factors like guests, switching off fans and lights.

Because single person can use less electricity compared to family

Seasonal Factors like winter and summer.

Because in winter more consumption of Air conditioner and in winter more consumption due to geysers, heaters etc

These are the factors which can affect the cost of electricity apart from occupancy days.