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 3,000 850 4,430 1,470 3,650 1,120 3,910 3,840 1,900 1,090 2,040 2,990 Electrical Costs $15,000 $ 4,250 $18,570 $ 7,350 $18,250 $ 5,600 $17,425 $17,288 $ 9,500 $ 5,450 $10,200 $14,950 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

Solution

Variable cost of electricity	$                  4.00	Per occupancy day
Fixed cost of electricity	$             850.00	Per month

Working

		Cost	No. of activities
A	High Level	$          18,570.00	4430
B	Low Level	$             4,250.00	850
C=A-B	Difference	$          14,320.00	$              3,580.00
A	Cost difference	$          14,320.00
B	No. of activities difference	3580
C=A/B	Variable cost per unit	$                     4.00
		High Level	Low Level
A	No. of activities	4430	850
B	Variable cost per unit	$                4.0000	$                  4.0000
C=AxB	Total Variable cost	$          17,720.00	$              3,400.00
D	Total cost	$          18,570.00	$              4,250.00
E=D-C	Total fixed cost	$                850.00	$                  850.00