USA: +1 (725) 712-1730 
Sign in
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)
Expert Answer
| 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 | |||
