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 Electrical Costs 3,410 $13,889 3,250 $13,008 4,470 $15, 158 1,940 $ 8,342 1,050 $ 4,515 450 $ 1,935 3,270 $13,094 4,510 $15,333 1,350 $ 5,805 1,640 $ 7,052 1,860 $ 7,998 2,970 $12,578 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

Answer 1

n 1) Under High low methed, Variable cost and fixed cost can be calculated as under Highest Activity Lost-laurent Activlat Variable Cost Per i Highest Achbity suits - lowest Unir Activity vints

there Highest Activity waits = 4510 days = 4510 Occupancy days Cosresponding highest Activity cost = 8 15333 lowest Activity Units = 450 Oecupemcy days Cosresponding lowest activity cost = $ 1935 By putting the above values in the formula, we get Variable cost Perunit = $15333 - $ 1935 4000 - 450 | 339&_ = $ per accepowey 4060 fixed Cost a Highest Activity cost- (varicashe cost - day fer unit & Highest Activity duik) = $ 15333 - ($3-3 x 4510) e $ 15333 - 14883 . $ 450 or sped cost = lowest Activity Cost - (vacicable cost per unit x lowest Activity Units) = $ 1935 - (3-3 X 430) = & 1935- & 1485 = $ 450 Variable Cost of electricity = $3.3 per ou fixed cost of electricity & 450 per month olubowy!

- Кері әже sement 2 What other factors are likely to in addition to occupancy days are likely to affect the variation in electrical costs from month to month M Systematic fachoss like guest, switching off I faus & lights. V No of days present in a mouth O Income taxes paid on hotel income Searcual factor like winter or summer ñ fixed salary fraid to hotel receptionist 1. Only the following factors are likely Ito affect the variation in electrical cool rom neonth to month & ® Systematic factors like quest, switching I of fams & lights De of days present in a nuouth seanand feelhor live winter or fummer. B seanong