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	3,350		$	9,241
February	3,610		$	9,666
March	1,680		$	5,208
April	1,230		$	3,813
May	4,380		$	10,428
June	1,690		$	5,239
July	4,130		$	10,058
August	4,250		$	10,125
September	1,950		$	6,045
October	2,140		$	6,634
November	1,480		$	4,588
December	2,710		$	7,829

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.unchecked
• Income taxes paid on hotel income.unchecked
• Seasonal factors like winter or summer.unchecked
• Fixed salary paid to hotel receptionist.unchecked

Answer 1

		Days	Electrical cost
High activity -May	4380	10428
Low activity -April	1230	3813
Change		3150	6615
VC per day = Change in cost / Change in days
	6615 /3150 = 2.10 per day
Fixed cost:
Total cost of High activities	10428
Less: Variable cost (4380*2.1)	9198
Fixed cost:		1230
Req 2.
The other factors are:
*Systematic factors like guests, switcing off fans and lights
* Number of days present in the month
*Seasonal factors like winter or summer