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 1,610 830 1,420 2,320 Electrical Costs $ 1,620 $ 8,352 $ 8,736 $ 5,190 $ 7,968 $ 3,960 $ 7,668 $ 8,780 $ 4,830 $ 2,490 $ 4,260 $ 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 to nearest whole dollar amount.) Variable cost of electricity Fixed cost of electricity per occupancy-day per month 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. ? Number of days present in a month. ? Income taxes paid on hotel income. ? Seasonal factors like winter or summer. ? Fixed salary paid to hotel receptionist.

Answer 1

Variable cost of electricity

= (Cost at highest activity - Cost at lowest activity)/(Highest activity-Lowest activity)

= (8780-1620)/(4120-540)

= 2 per occupancy day

​​​​​​Fixed cost = 8780 - (4120*2) = $540