Question

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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 3,230 3,100 4,170 2,110 1,100 950 3,190 2,080 4,200 1,060 1,670 2,830 Electrical Costs $10,194 $ 9,888 $12,266 $ 7,807 $ 4,070 $ 3,515 $10,046 $ 7,696 $12,290 $ 3,922 $ 6,179 $ 9,241 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 ocupancy day per month

Answer 1

Variable cost of electricity Fixed cost of electricity $2.70 per occupancy day $950 Working notes: High and Low method High September $12,290 4,200 Low June $3,515 Electrical Costs Occupancy Days Difference $8,775 3,250 950 Variable cost per occupancy day Difference in Electrical costs Difference in Occupancy days $8,775 3,250 $2.70 Calculation of Fixed cost Occupancy Days Variable cost per occupancy day Variable cost Fixed cost September 4200 $2.70 $11,340 $950 June 950 $2.70 $2,565 (Total Occupancy * Variable cost) $950 (Total costs-Total variable costs)