EXERCISE 6-1 Applying the High-Low Method; Predicting Cost [LO2-CC9] The Lakeshore Hotel's occupancy-days and custodial supplies expense over the last seven months were as follows: Month Occupancy-Days Custodial Supplies Expense $22,500 March 18,000 April 12.500 20,850 May 15.000 20,250 June 28,500 28,850 July 24,000 27,100 August 19.000 22,750 September 14,500 20.750 Occupancy-days are a measure of the overall activity at the hotel. For example, when a guest stays at the hotel for three days, it is counted as three occupancy-days. Required: 1. Using the high-low method, estimate a cost formula for custodial supplies expense. 2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 13,000 occupancy-days? EXERCISE 6-2 Applying the Least-Squares Regression Method [LO2 - CC11] Required: Repeat Requirements (1) and (2) of Exercise 6-1 using least-squares regression (you may use a spreadsheet to compute the fixed and variable costs). Comment on the reliability of using occupancy-days as an allocation base. Pace 259 EXERCISE 6-3 Applying the High-Low and Scattergraph Methods [LO2-CC8, 9, 10] Refer to the data in Exercise 6-1. Required: 1. Prepare a scattergraph by plotting custodial supplies expense on the vertical axis and occupancy- days on the horizontal axis. Fit a regression line to your plotted points by visual inspection. 2. What is the approximate monthly fixed cost? The approximate variable cost per occupancy-day? 3. Scrutinize the points on your graph, and explain why the high-low method would or would not yield an accurate cost formula in this situation