Exercise 5A-1 High-Low Method [LO5-10] The Cheyenne Hotel in Big Sky, Montana, h
ID: 2401336 • Letter: E
Question
Exercise 5A-1 High-Low Method [LO5-10]
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.
Occupancy-Days
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.unanswered
Number of days present in a month.unanswered
Income taxes paid on hotel income.unanswered
Seasonal factors like winter or summer.unanswered
Fixed salary paid to hotel receptionist.
MonthOccupancy-Days
Electrical Costs January 3,560 $ 6,573 February 3,420 $ 6,209 March 4,120 $ 7,022 April 1,990 $ 5,174 May 430 $ 1,118 June 1,750 $ 4,550 July 3,690 $ 6,687 August 3,970 $ 6,968 September 1,950 $ 5,070 October 1,450 $ 3,770 November 2,050 $ 5,330 December 2,300 $ 5,980Explanation / Answer
1)
Variable cost per occupacy days =change in cost /change in occupancy days
= 5904 / 3690
= $ 1.6 per occupancy days
Fixed cost at highest activity level =Total cost- Variable cost
= 7022- [4120*1.6]
= 7022- 6592
= $ 430
2)correct option is "
a)Systematic factors like guests, switching off fans and lights.unanswered
b)Number of days present in a month.unanswered
c)Seasonal factors like winter or summer.unanswered
cost occupancy days (activity) Highest activity 7022 4120 Lowest activity 1118 430 change 5904 3690