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 for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer. Month Occupancy-Days Electrical Costs January 1,736 $ 4,127 February 1,904 $ 4,207 March 2,356 $ 5,083 April 960 $ 2,857 May 360 $ 1,871 June 744 $ 2,696 July 2,108 $ 4,670 August 2,406 $ 5,148 September 840 $ 2,691 October 124 $ 1,588 November 720 $ 2,454 December 1,364 $ 3,529

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.)

Answer 1

Answer:

The fixed cost of electricity per month and the variable cost of electricity per occupancy-day is $1,395 and $1.56 respectively

Explanation:

The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per hour = (High cost - low cost) ÷ (High occupancy days - low occupancy days)

= ($5,148- $1,588) ÷ (2,406 days - 124 days)

= $3,560 ÷ 2,282 days

= $1.56 per occupancy day

Now the fixed cost equal to

= High cost - (High occupancy days × Variable cost per occupancy day)

= $5,148 - (2,406 days × $1.56)

= $5,148 - $3,753

= $1,395

Answer 2

Using the high-low method, the fixed cost of electricity per month is $1,395 and the variable cost of electricity per occupancy day is $1.56.

What is a fixed cost?

Fixed cost is also called known indirect costs or overhead costs. These are business expenses that are not dependent on the level of goods or services produced by the business.

Computation of fixed and variable cost:

According to the given information,

High Cost = $5,148 ,

Low Cost = $1,588,

High Occupy Days = 2,406 days, and

Low Occupy Days = 124

Now, computer the value of Variable cost per hour:

$\text{Variable Cost Per Hour} = \dfrac{\text{(High Cost - Low Cost)}}{\rm(High Occupancy Days - Low Occupancy Days)}}\\\\\\\text{Variable Cost Per Hour} =\dfrac{\ 5,148-\ 1,588}{2,406-124}\\\\\\\text{Variable Cost Per Hour} = \ 1.56\text{ Per Occupancy Day}$

Now, the value of fixed cost is:

$\text{Fixed Cost} = \text{High Cost} - \text{(High Occupancy Days} \times \text{ Variable Cost Per Occupancy Day)}\\\\\text{Fixed Cost} = \ 5,148 - (2,406 \text{Days} \times \ 1.56)\\\\\text{Fixed Cost} = \ 1,395$

Therefore, the value of the fixed cost is $1,395.

Learn more about the fixed cost, refer to:

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