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. 680 Month January Tebruary March April May June July August September October November December Occupancy-Days Electrical Costs 3,400 $10,234 3,280 $10,052 4.370 $11,605 1,950 $ 6,825 $ 2,380 1,960 $ 6,860 4,040 $11.060 4,080 $11,100 2.240 $ 7.602 1,030 $ 3.605 $ 4.634 2,700 $ 8,974 1,460 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 Foxed cost of electricity per occupancy day per month

Answer 1

1.

Variable cost of electricity	$       2.50	per occupancy-day
Fixed cost of electricity	$        680	per month

Working:

	Occupancy-Days	Electrical Costs
High level	4370	$              11,605
Low level	680	$                2,380
Change	3690	$                9,225

Variable cost = $9225/3690 = $2.50

Fixed cost (at high-level) = $11605 - (4370 x $2.50) = $11605 - $10925 = $680

Fixed cost (at low-level) = $2380 - (680 x $2.50) = $2380 - $1700 = $680

2. Other factors:

Systematic factors like guests, switching off fans and lights.

Number of days present in a month.

Seasonal factors like winter or summer.