Question

No of hotel rooms & suites Year ended 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 12/31/2008 39,218 42,200 42,710 42.890 42,010 41,830 39.170 12/31/2007 12/31/2006 12/31/2005 12/31/2004 12/31/2003 12/31/2002 12/31/2001 12/31/2000 12/31/1999 12/31/1998 12/31/1997 12/31/1996 12/31/1995 12/31/1994 12/31/1993 Food and beverage costs 694,000,000 639,000,000 634,000,000 665,700,000 621,300,000 596,000,000 639,500,000 716,500,000 697,600,000 482,300,000 278,100,000 255,200,000 240,600,000 232,400.000 228,000,000 218,600,000 116,600,000 103,600,000 95,900,000 91,500,000 82,800,000 76,500,000 38,130 38,060 43.060 17,220 14.780 14.551 13,598 11,562 11.760 11,685 8,197 6,478 5,736 5,367 5,348 1. Perform a regression analysis using Excel. Use # of hotel rooms & suites as the X and the Food and beverage costs as the Y in your regression analysis. a. What is the estimated variable food and beverage cost per hotel room/suite? b. What is the estimated fixed food and beverage cost per hotel room/suite? c. In your opinion, is the number of hotel rooms and suites a good predictor of Caesars' food and beverage costs? Why or why not? Compare the estimates of variable and fixed costs calculated using the high-low method to the estimates calculated using the regression method. Which method would most likely provide a better cost estimate? Explain.

Answer 1

1)

(TC) = (F.C.) +( V.C.)(N)

Here, T.C. = Total Cost ; F.C. : Fixed Cost; V.C.: Variable Cost; N:No. of Rooms

a) Using High-Low Method:

V.C. (TCMar - TC Min) NMar - NMin

Here, TC_Max = The Largest Total Cost = 716,500,000

TC_Min = The Least Total Cost = 76,500,000

N_Max = Highest No. of Rooms = 43,060

N_Min = Least No. of Rooms = 5,348

Therefore, Substituting these Values in the Above Formula:

$V.C.=\frac{((716,500,000)-(76,500,000))}{(43,060)-(5348)}$

V.C. (640,000,000) 37,712

b)

When N = 5,348 and TC = 76,500,000

Therefore,

76,500,000 = FC+ (16970.725)

FC = $ 76,483,029.275

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