The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total ele
ID: 340603 • 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 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.)
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.
MonthOccupancy-Days
Electrical Costs January 3,400 $ 10,234 February 3,280 $ 10,052 March 4,370 $ 11,605 April 1,950 $ 6,825 May 680 $ 2,380 June 1,960 $ 6,860 July 4,040 $ 11,060 August 4,080 $ 11,100 September 2,240 $ 7,602 October 1,030 $ 3,605 November 1,460 $ 4,634 December 2,700 $ 8,974Explanation / Answer
1 Variable cost = (11605-2380)/(4370-680)= $2.5 Fixed cost of electricity per month=11605-(4370*2.5)= $680 2 Systematic factors like guests, switching off fans and lights. Number of days present in a month. Seasonal factors like winter or summer.