EXERCISE3-8 High-Low Method; Predicting Cost The Lakeshore Hotel\'s guest-days o

Question

EXERCISE3-8 High-Low Method; Predicting Cost
The Lakeshore Hotel's guest-days of Occupancy and custodial supplies expense over the last seven months were.
Month Guest day Occupancy Custodial Supplies Expense
March . 4,000 7,500
April . 6,500 8,250
May . 8,000 10,500
June . 10,500 12,000
July . 12,000 13,500
August . 9,000 10,750
September . 7,500 9,750

Guest- day is measaured 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.

Questions:
I. Using the high-low method, estimate a cost formula for custodial supplies expense.

2. Using the cost formula you derived above, what amount of custodial supplies expenses would you expect to be incurred at an occupancy level of 11,000 guest days?




expect to be incurred at an occupancy level of 11,000 guest-days?

Explanation / Answer

1. Using High low method, Variable Cost per day= (13500 - 7500) / (12000-4000) =$0.75 Fixed Cost = 7500 - (0.75*4000) =$4,500 Cost Function, C = 4500 + 0.75 D where, C = total Cost D = Guest Days 2. Expense = 4500 +0.75 *11000 = $12,750

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.