Sand, Inc., has experienced difficulty in estimating its costs at various levels of occupancy for its hotel. Management believes that this difficulty is part of the reason that they are not maintaining the profitability of past years. In an attempt to predict its cost-behavior patterns, managers spent much time analyzing past data and future trends.

Except for housekeeping services, managers have separated all department costs into variable and fixed costs. Costs in this area do not seem to demonstrate a strictly fixed or strictly variable pattern. The following are housekeeping costs over the past several months, along with the number of rooms occupied:

You are to determine whether these costs contain a mixture of variable and fixed cost elements.
Required:

a. Use the least squares method to determine the variable and fixed cost elements in total housekeeping costs. (You may compute the variable rate in thousands of rooms occupied or divide by 1,000 and express the variable rate per room occupied since the data are in thousands of rooms.)

b. Express the data determined in Requirement a for housekeeping in a cost estimating formula.

c. Prepare a scattergraph using the preceding data. Place cost on the vertical axis and rooms occupied (the activity) on the horizontal axis. Fit a regression line to the plotted points by simple visual inspection.

d. Do housekeeping costs contain both variable and fixed cost elements? If so, what is the approximate total fixed cost and the approximate variable cost per room occupied based on the scattergraph?

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Month Rooms Occupied (000) Housekeeping Costs January. February 3 $15,100 16,900 March. 22,100 April.. 5 16,300 May 10 22,696 June July August September. 6965 16,800 17,200 17,000 16,500