The Lakeshore Hotel\'s occupancy-days and custodial supplies expense over the la

Question

The Lakeshore Hotel's occupancy-days and custodial supplies expense over the last seven months were as follows: Month March April May June July August 6,600 7,800 13,700 20,500 25,200 17,600 14,900 11,960 12,330 16,520 20,300 23,120 17,210 16,290 Occupancy-days are a measure of the overall activity at the hotel. For example, when a guest stays at the hotel for three days, it is counted as three occupancy-days. Required 1. Using the high-low method, estimate a cost formula for custodial supplies expense. (Round the "Variable cost" to 2 decimal places.) 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 11,800 occupancy-days? Variable cost Fixed cost Total cost

Explanation / Answer

1 Unit variable cost=(23120-11960)/(25200-6600)= $0.60 Fixed cost=23120-(25200*0.6)= $8000 2 Variable cost 7080 =11800*0.6 Fixed cost 8000 Total cost 15080

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