The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total ele

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 out for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer.

Month Occupancy- Electrical
Days Costs

January 2,614 $6,255
February 2,860 $6,547
March 4,060 $8,091
April 1,437 $4,017
May 530 $2,288
June 1,115 $3,591
July 3,165 $7,261
August 4,110 $8,156
September 1,284 $3,705
October 410 $1,716
November 1,020 $3,315
December 2,040 $5,187

1. Using the high-low method, estimate the variable cost of electricity per occupancy-day and the fixed cost of electricity per month

Explanation / Answer

High level 4,110 $8,156
Lowest level 410 $1,716
Difference 3,700 $6,440

Variable cost $ per occupancy/ day = 6,440/ 3700

Variable cost $ per occupancy/ day = $1.74

August

8,156 = 4,110(1.74) + Fixed Cost

Fixed Cost = $1004.6

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