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	2,710		$	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.)

Answer 1

Electrical Costs
	Occupancy-Days	Electrical Costs
High level of activity	4,200	$7,160
Low level of activity	860	$2,150
Change	3,340	$5,010
Variable cost per unit =$5,010 / 3,340 days =$1.50 per Occupancy-Days
Fixed cost element =$7,160 - (4,200*$1.50) =$860