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?

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

Answer 1

			Days	Electrical cost
May-High activity		4200	7160
Mar-Low activity		860	2150
Change			3340	5010
Variable cost per day = Change in cost / Change n days
		5010 /3340 = 1.50 per day
Total Fixed cost:
Total cost of hgh activity		7160
Less: Variable cost (4200 days @1.50)	6300
Total fixed cost			860
Y = 860 + 1.50x
Req b.
Answer is.
*Systematic factors like guest, switching off fans and lights
*Number of days present in a month
*Seasonal factors like winters, summers