Developing an Equation from Average Costs The America Dog and Cat Hotel is a pet hotel located in Las Vegas. Assume that in March, when dog-days (occupancy) were at an annual low of 500, the average cost per dog-day was $14. In July, when dog-days were at a capacity level of 4,000, the average cost per dog-day was $7. (a) Develop an equation for monthly operating costs. (Let X = dog-days per month) Total cost =Answer + Answer * X
(b) Determine the average cost per dog-day at an annual volume of 24,000 dog-days.
$Answer
ANSWER :-
Units |
Cost |
|
High Level |
4,000 |
$28,000.00 [4000 x $ 7] |
Low Level |
500 |
$7,000.00 [ 500 x $ 14] |
Difference |
3,500 |
$21,000.00 |
A |
Difference in Cost |
$21,000.00 |
|
B |
Difference in units |
3,500 |
|
C = A/B |
Variable cost per unit |
$6.00 |
|
Working |
High Level |
Low Level |
|
A |
Total Cost |
$28,000.00 |
$7,000.00 |
B |
Total Units |
4000 |
500 |
C |
Variable cost per unit |
$6.00 |
$6.00 |
D = B x C |
Total Variable cost |
$24,000.00 |
$3,000.00 |
E = A - D |
Total Fixed Cost |
$4,000.00 |
$4,000.00 |
==> Requirement [a]
Variable cost = $ 6 per dog day
Fixed Cost = $ 4000
Equation:
Total Cost = $ 4,000 + $ 6 * X
==> Requirement [b]
Total Cost = $ 4,000 + $ 6 * X
Total Cost = 4000 + ($6 x 24000 dog days)
= 4000 + 144000
= $ 148,000
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