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 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	2,640		$	13,200
February	2,860		$	14,300
March	980		$	4,900
April	2,420		$	12,100
May	2,090		$	10,450
June	4,470		$	18,860
July	4,020		$	17,160
August	3,940		$	16,760
September	1,630		$	8,150
October	1,090		$	5,450
November	1,390		$	6,950
December	2,910		$	14,550

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? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

• Systematic factors like guests, switching off fans and lights.unanswered
• Number of days present in a month.unanswered
• Income taxes paid on hotel income.unanswered
• Seasonal factors like winter or summer.unanswered
• Fixed salary paid to hotel receptionist.

Answer 1

High low method uses highest and lowest activity to find variable cost

	Occupancy days	Electrical cost
High activity level	4,470	$18,860
Low activity level	980	$4,900
change	3,490[4470-980]	$13,960[$18,860-4,900]
Variable cost	$4[$13,960/3,490]
Fixed cost*	$980

*Total cost = variable cost+fixed cost

$18,860=$4*4,470 + fixed cost

fixed cost = $980

2)

• Systematic factors like guests, switching off fans and lights. √
• Number of days present in a month.√
• Seasonal factors like winter or summer.√

Income taxes paid on hotel income.wont affect the electrical cost.. Electrical cost affects income tax

Fixed salary paid to hotel receptionist wii not affect electrical cost.

Seasonal factors like winter or summer affects electrical cost as eclectrical cost would be higher in summers due to higher power consumption

Number of days present in a month and Systematic factors like guests, switching off fans and lights affectes electrical cost .Higher the days present higher the electrical cost

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