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 out 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 3,400 $ 10,234
February 3,280 $ 10,052
March 4,370 $ 11,605
April 1,950 $ 6,825
May 680 $ 2,380
June 1,960 $ 6,860
July 4,040 $ 11,060
August 4,080 $ 11,100
September 2,240 $ 7,602
October 1,030 $ 3,605
November 1,460 $ 4,634
December 2,700 $ 8,974

Required:
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 intermediate calculations. Round Variable cost to 2 decimal places and Fixed cost element to the nearest dollar.)

Occupancy days Electrical cost
High activity level
Low activity level
Change
Variable cost
Fixed cost

Respuesta :

Answer:

                                         Occupancy days                Electrical cost

High activity level              4,370                                  $11,605

Low activity level               680                                     $2,380

Change                              3,690                                  $9,225

Variable cost                     $2.50 per occupancy days

Fixed cost                         $680

Explanation:

The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per occupancy-day = (High electrical cost - low electrical cost) ÷ (High month occupancy days - low month occupancy days)

= ($11,605 - $2,380) ÷ (4,370 days - 680 days)

= $9,225 ÷ 3,690 days

= $2.50 per occupancy days

Now the fixed cost equal to

= High electrical cost - (High month occupancy days × Variable cost per occupancy days)

= $11,605- (4,370 days × $2.5)

= $11,605 - $10,925

= $680