Question & Answer: The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupan…..

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 hotels business is highly seasonal, with peaks occurring during the ski season and in thee summer Occupancy- 1,736 3 $4,127 $4,207 $5,083 $2,857 $1,871 February $4,670 2 $2,691 $1,588 $2,454 $3,529 September November December equired: 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) Occupancy Electrical Costs High activity level Low activity level Variable cost per occupancy-day Fixed cost element

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. 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)

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Solution:
Occupancy Electrical
Days Costs
High activity level 2,406 $5,148
Low activity level 124 $1,588
Change 2,282 $3,560
Variable Cost $1.56 per occupancy-day
Fixed cost element $1,395
Working Notes:
Occupancy Electrical
Days Costs
High activity level 2,406 $5,148
[August]
Low activity level 124 $1,588
[October ]
Change 2,282 $3,560
Variable Cost $1.56 per occupancy-day
Fixed cost element $1,395
Notes:
Variable cost = Change in cost / Change in activity
= $ 3,560/2,282
= $ 1.56 per occupancy day
Fixed cost Element
Total Cost for August $5,148
Less: Variable cost $3,753
[ ($ 3560/2,282) x 2,406 occupancy days ]
[ $ 1.56 x 2,406 ]
Fixed cost Element $1,395

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