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High-Low Method and Predicting Cost

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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 occuring during the ski season and in the summer.

Month Occupancy-Days Electrical Costs
Jan 1736 $4127
FEB 1904 4207
MAR 2356 5083
APR 960 2857
MAY 360 1871
JUNE 744 2696
JULY 2108 4670
AUG 2406 5148
SEP 840 2691
OCT 124 1588
NOV 720 2454
DEC 1364 3529

1. 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.

2. What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month?

comment: I've tried this 3 times and still am lost.

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Solution Summary

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 occuring during the ski season and in the summer.

Solution Preview

Please see the attached file.

1. Occupancy-Days Electrical Costs
High activity level (August) 2,406 $5,148
Low activity level (October) 124 1,588
Change 2,282 $3,560

Variable cost = Change in cost ÷ Change in ...

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