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	Occupancy-Days		Electrical Costs
January	2,710		$	5,270
February	3,600		$	6,205
March	860		$	2,150
April	2,170		$	4,350
May	4,200		$	7,160
June	1,530		$	3,825
July	4,110		$	7,050
August	4,060		$	6,925
September	1,980		$	4,090
October	1,160		$	2,900
November	1,210		$	3,025
December	2,480		$	4,910

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.)

2. What other factors in addition to occupancy-days are likely to affect the variation in electrical costs from month to month? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

• Systematic factors like guests, switching off fans and lights.unchecked
• Number of days present in a month.unanswered
• Income taxes paid on hotel income.unanswered
• Seasonal factors like winter or summer.unchecked
• Fixed salary paid to hotel receptionist.

Answer 1

			Days	Electrical cost
High activity-May		4200	7160
Low activity-Mar		860	2150
change			3340	5010
Variable cost per day = Change in cost / Change in days
		5010 / 3340 = 1.50 per day
Fixed cost:
Total cost at 4200 days	7160
Less: Variable cost @1.50	6300
Fixed cost:		860
Req 2.
Systematic factors like guests, switching off fans and lights.
Number of days present in a month
Seasonal factors winter or summer.