Question

question 10

Exercise 5A-1 High-Low Method [LOS-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 s eason and in the summer Occupancy- Month Days January 3,290 February 3,160 March 1,800 April 4,430 May 970 June 1.650 July 4,150 August 4,160 September 2,050 October 1,110 November 780 December 2,810 Electrical Costa $16,450 $ 15,800 $ 9,000 $18,500 $ 4,850 $ 8,250 $18,020 $18,070 $10,250 $ 5,550 $ 3,900 $14.050 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity pe occupancy-day. (Do not round your intermediate calculations. Round your Variable cost answer to 2 decimal place and Fixed cost element answer to nearest whole dollar amount.) Variable cost of electricity Fixed cost of electricity 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

High low method uses high and low activity level to determine fixed cost of electricity and variable cost of electricity per occupancy day
Variable cost of electricity	(High occupancy days cost - Low occupancy days cost)/(High occupancy days-Low occupancy days)
Variable cost of electricity	(18500-3900)/(4430-780)
Variable cost of electricity	14600/3650
Variable cost of electricity	$4.00	per occupancy day
Fixed costs of occupancy	18500-(4430*4)
Fixed costs of occupancy	18500-17720
Fixed costs of occupancy	$780	per month
The other factors that would impact is seasonal factors, systematic factors and number of days present in month