Question

The Katz Motel in Nowhere, Kansas, has accumulated records of the total electrical costs of the motel and the number of occupancy-days over the last year. An occupancy-day represents a room rented for one day. The motel’s business is highly seasonal, with peaks occurring during the ski season and in the summer.

Month	Occupancy-Days		Electrical Costs
January	3,180		$	6,510
February	2,920		$	6,261
March	3,780		$	7,392
April	2,160		$	5,569
May	650		$	1,820
June	2,050		$	5,261
July	4,050		$	7,829
August	4,070		$	7,896
September	1,780		$	4,984
October	570		$	1,596
November	1,580		$	4,424
December	2,680		$	5,908

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.)

variable costs of electricity __________ per occupancy-day

fixed cost of electricity _____________ per month

Answer 1

• Requirement 1

Variable Cost of electricity = $ 1.80 per occupancy day
Fixed Cost of electricity = $ 570 per months

• Working

	Month	Units or Occupancy Days	Cost
High Level	Aug	4,070	$                     7,896.00
Low Level	Oct	570	$                     1,596.00
Difference		3,500	$                     6,300.00
A	Difference in Cost		$                     6,300.00
B	Difference in units		3,500
C = A/B	Variable cost per unit		$                           1.800
Working		High Level	Low Level
A	Total Cost	$                   7,896.00	$                     1,596.00
B	Total Units	4070	570
C	Variable cost per unit	$                           1.80	$                             1.80
D = B x C	Total Variable cost	$                   7,326.00	$                     1,026.00
E = A - D	Total Fixed Cost	$                       570.00	$                         570.00