The Lakeshore Hotel’s guest-days of occupancy and custodial supplies expense ove

Question

The Lakeshore Hotel’s guest-days of occupancy and custodial supplies expense over the last seven months were:

Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days.

Required:

1. Using the high-low method, estimate a cost formula for custodial supplies expense. (Do not round your intermediate calculations and Round the Variable cost per guest-day to 2 decimal points)

2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,200 guest-days? (Do not round your intermediate calculations.)

Month Guest-Days of
Occupancy Custodial Supplies
Expense March 6,500 $ 11,100 April 5,000 $ 10,200 May 7,500 $ 11,700 June 9,000 $ 12,600 July 11,000 $ 13,800 August 8,000 $ 12,000 September 4,000 $ 9,600

Explanation / Answer

Custodial guest Supplies days expense High activity level 11,000 13,800 Low activity level 4,000 9,600 Change 7,000 4,200 Variable cost per guest day 0.6 (per guest day) (4200/7000) Fixed cost per month 7200 (13800-11000*.6) 2) Variable cost 6720 Fixed cost 7,200 total cost 13920

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