Estimating the Hotel's Cost Function Next week is the Area Manager's Meeting. Your GM wants to look good in front of her boss, the district managers and other general managers. To begin your analysis, you must estimate the hotel's cost equation. The accounting department provided you with three years (2015-2017) of monthly data. These data consist of the following items: Rooms available A measure of capacity. Rooms out of service (for repairs) lower this measure. Rooms rented Number of rooms sold each month (ie., sales volume) Rooms revenues Total revenues received for rooms rented. Other revenues Includes vending machines, Internet access, laundry, etc. Total revenues The sum of room revenues and other revenues. Front office Wages for the general manager and the front desk staff. Housekeeping Wages for housekeepers, housekeeper supervisor and laundry worker. Other personnel Wages for the maintenance worker, payroll taxes, benefits, etc. Total personnel The sum of front office, housekeeping and other personnel expenses. Supplies Expenses related to cleaning supplies, in-room amenities, coffee, etc. Other expenses All expenses not otherwise classified (e.g., advertising) Repairs Expenses related to paint, plumbing supplies, electrical supplies, etc. Energy Expenses for gas, electricity and water. Other utilities Expenses for trash pickup, cable television, telephone equipment, etc. Required 1. Identify the cost object (i.e., the dependent, or y variable). 2. Identify the cost driver (i.e., the independent, or x value). 3. Plot the data to assess whether a linear (mixed cost) model is appropriate. Are there any unusual data points that should be removed or transformed? 4. How much data should be used in the cost equation? Must you adjust for inflation? 5. Estimate the cost equation. 6. Evaluate the cost equation