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
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 2,710$5,270
February 3,600$6,205
March 860$2,150
April 2,170$4,350
May 4,200$7,160
June 1,530$3,825
July 4,110$7,050
August 4,060$6,925
September 1,980$4,090
October 1,160$2,900
November 1,210$3,025
December 2,480$4,910
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?
- 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.
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