Question

The Kapalua Bay Hotel in Maui, Hawaii, 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 3,560 $ 6,573 February 3,420 $ 6,209 March 4,120 $ 7,022 April 1,990 $ 5,174 May 430 $ 1,118 June 1,750 $ 4,550 July 3,690 $ 6,687 August 3,970 $ 6,968 September 1,950 $ 5,070 October 1,450 $ 3,770 November 2,050 $ 5,330 December 2,300 $ 5,980 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. (Do not round your intermediate calculations. Round your Variable cost answer to 2 decimal places and Fixed cost element answer to nearest whole dollar amount) 2. What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month

Answer 1

1) variable electrical cost per occupancy day = $1.60

monthly fixed electrical cost = $430

2) Whether it is too hot (and theoretically if it was too cold also, but its Hawaii). If its too hot, more people will use air conditioners to cool the rooms.

Step-by-step explanation:

Month Occupancy- Days Electrical Costs

January 3,560 $ 6,573

February 3,420 $ 6,209

March 4,120 $ 7,022 (highest level)

April 1,990 $ 5,174

May 430 $ 1,118 (lowest level)

June 1,750 $ 4,550

July 3,690 $ 6,687

August 3,970 $ 6,968

September 1,950 $ 5,070

October 1,450 $ 3,770

November 2,050 $ 5,330

December 2,300 $ 5,980

variable costs = ($7,022 - $1,118) / (4,120 - 430) = $5,904 / 3,690 = $1.60

fixed cost = $7,022 - (4,120 x $1.60) = $430