Help S The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the to
ID: 2394025 • Letter: H
Question
Help S The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of with peaks occurring during the ski season and in the summer. over the last year. An occupancy-day represents a room rented for one day. The hotel's business is highly seasonal, 3,000 850 4,430 $15,000 4,250 $18,570 s 7,350 $18,250 $ 5,600 3,650 1,120 3,910 3,840 1,900 $17,288 $ 9,500 s 5,450 $10,200 $14,950 2,990 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.)Explanation / Answer
Variable cost per unit as per high low method
= Total cost @ highest activity level - Total cost @ lowest activity level / Total units @ highest activity level - Total units @ lowest activity level .
Variable cost of electricity = ($18,570 - $4,250) / ( 4,430 - 850)
= $14,320 / 3,580 = $4.00 per occupancy day
Now , we know that
Total costs = Total Fixed costs +Total Variable costs.
Thus to find fixed costs we wiil use the toal costs at say highest activity level
Fixed costs of electricity :
Total cost @ highest activity level - (Variable cost of electricity per occupancy day * Occupancy days @ highest activity level)
= $18,570 - ($4 * 4,430) = $850 per month
Summary
Variable cost of electricity $4 per occupancy day Fixed costs of electricity $850 per monthRelated Questions
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