[The following information applies to the questions displayed below.] 1. The Lak

Question

[The following information applies to the questions displayed below.]

1. The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were:


Month Guest-Days of
Occupancy Custodial Supplies
Expense
March 2,860 $16,600
April 4,490 $22,400
May 5,020 $23,300
June 4,270 $20,500
July 7,050 $27,494
August 6,980 $28,200
September 3,020 $18,400

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2. Guest-days is a measure 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.


Requirement 1:
Using the high-low method, estimate a cost formula for custodial supplies expense where X is the number of guest-days. (Round the variable cost per guest-day to 1 decimal place. Omit the "$" sign in your response.)


Y = $ + $ X





Requirement 2:
Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 4,570 guest-days? (Omit the "$" sign in your response.)



Variable cost $
Fixed cost

Total cost $


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Explanation / Answer

Requirement 1: Using the high-low method, estimate a cost formula for custodial supplies expense where X is the number of guest-days. (Round the variable cost per guest-day to 1 decimal place. Omit the "$" sign in your response.) Month Guest-Days Custodial of Occupancy Supplies Expense High level 7050 27,494 Lowest level 2860 16,600 Difference 4190 10,894 Per Guest day variable cost = 10,894 / 4,190 = $2.6 Fixed Cost = $9,164 Y = $ + $ X The formula will be Y= $9164 + $2.6 X Requirement 2: Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 4,570 guest-days? (Omit the "$" sign in your response.) Variable cost $11,882 (4570 x 2.6) Fixed cost $9,164 Total cost $21,046

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