Cheyenne Hotel: Using the High-Low Method
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High-Low Method
1. 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
Required:
Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. Round off the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent.
What other factors in addition to occupancy-days are likely to affect the variation in electrical costs from month to month?
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Solution Summary
The Solution uses the Cheyenne Hotel as an example of the high-low method to estimate fixed and variable costs in Excel.
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