The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total ele
ID: 2606554 • Letter: T
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.
Occupancy-
Days
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)
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.
Explanation / Answer
The following is the required table:
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.
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