Exercise 1-4 High-Low Method [LO4] The Edelweiss Hotel in Vail, Colorado, has ac

Question

Exercise 1-4 High-Low Method [LO4] The Edelweiss Hotel in Vail, Colorado, 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 occurring during the ski season and in the summer. Month Occupancy- Days Electrical Costs January 2,630 $ 10,783 February 3,130 $ 12,833 March 3,640 $ 13,583 April 1,090 $ 4,469 May 1,770 $ 7,257 June 1,730 $ 7,093 July 4,440 $ 14,854 August 3,860 $ 13,815 September 2,170 $ 8,897 October 1,210 $ 4,961 November 1,790 $ 7,339 December 2,930 $ 12,013 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. (Round the "Variable cost per occupancy-day" to 2 decimal places and the "Fixed cost" to the nearest dollar amount.)

Explanation / Answer

Hi-Low Find the high and low for both the costs and units and subtract Costs: 5,148 - 1588 = 3560 Units: 406 - 124 = 282 VC per unit: 3560 / 282 = 12.62 Fixed Costs: VC would be 12.62 x 124 = 1,565 so fixed costs would be 1588 - 1565 = 23 Part 2 A true, some will use lights more than others B false, july has 3 more days than Feb and probably would use more electricity C true - AC in the summer is usually more than in Oct, Nov. same for heat

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