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 out for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer.

Month	Occupancy- Days	Electrical Costs
January	3,240	$	8,622
February	3,060	$	8,228
March	1,150	$	3,910
April	2,260	$	7,684
May	4,310	$	10,984
June	1,270	$	4,318
July	3,410	$	9,418
August	640	$	2,176
September	1,310	$	4,454
October	3,760	$	9,738
November	1,330	$	4,522
December	2,570	$	7,868

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)

	Occupancy	Electrical
	Days	Costs
High activity level
Low activity level
Change	0	$0
Variable cost		per occupancy-day
Fixed cost element

Answer 1

The following is the required table:

	Occupancy days	electrical costs
High level activity (may)	4310	10,984
Low activity level (august)	640	2,176
Change	3670	8,808
Variable cost (8,808 / 3670)	$2.40	per occupancy day
Fixed cost element (see note)	$640

note:

Variable cost element = change in electrical cost / change in occupancy

=>$8,808 / 3,670

=>$2.40 per occupancy day.

Now, consider august month activity.

Total variable cost in august month = variable cost per occupancy day * occupancy days.

=>$2.40* 640

=>$1,536.

Fixed cost per month = total cost of august month - variable cost of august month.

,=>$2,176 - 1,536

=>$640.