Question

LUCU ORICSS ULTIMIL E tion in the dependent variable that is explained by variation in the independent variable. (p. 246) sconnect Appendix 5A: Exercises EXERCISE 5A-1 High-Low Method L05-10 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 1.736 1.904 2,356 960 360 744 2,108 2.406 840 124 720 1.364 Electrical Costs $4,127 $4,207 $5,083 $2,857 $1,871 $2,696 $4,670 $5,148 $2,691 $1,588 $2,454 $3,529 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. Round off the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent. 2. What other factors in addition to occupancy-days are likely to affect the variation in electrical costs from month to month?

Answer 1

Answer to Requirement 1:

Highest:

Electrical cost = $5,148
Occupancy days = 2,406

Lowest:

Electrical cost = $1,588
Occupancy days = 124

Variable electrical cost per occupancy day = (Highest electrical cost - Lowest electrical cost) / (Highest occupancy days - Lowest occupancy days)
Variable electrical cost per occupancy day = ($5,148 - $1,588) / (2,406 - 124)
Variable electrical cost per occupancy day = $1.56

Fixed electrical cost = Highest electrical cost - Variable electrical cost per occupancy day * Highest occupancy days
Fixed electrical cost = $5,148 - $1.56 * 2,406
Fixed electrical cost = $1,395

Total electrical cost = Variable electrical cost per occupancy day * Number of occupancy days + Fixed electrical cost
Total electrical cost = $1.56 * Number of occupancy days + $1,395

Answer to Requirement 2:

Systematic factors like guests, switching off fans and lights
Number of day present in a month
Seasonal factors like winter or summer.