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26 July, 04:48

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 1,736 $ 4,127 February 1,904 $ 4,207 March 2,356 $ 5,083 April 960 $ 2,857 May 360 $ 1,871 June 744 $ 2,696 July 2,108 $ 4,670 August 2,406 $ 5,148 September 840 $ 2,691 October 124 $ 1,588 November 720 $ 2,454 December 1,364 $ 3,529

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.)

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  1. 26 July, 06:41
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    The fixed cost of electricity per month and the variable cost of electricity per occupancy-day is $1,395 and $1.56 respectively

    Explanation:

    The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

    Variable cost per hour = (High cost - low cost) : (High occupancy days - low occupancy days)

    = ($5,148 - $1,588) : (2,406 days - 124 days)

    = $3,560 : 2,282 days

    = $1.56 per occupancy day

    Now the fixed cost equal to

    = High cost - (High occupancy days * Variable cost per occupancy day)

    = $5,148 - (2,406 days * $1.56)

    = $5,148 - $3,753

    = $1,395
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