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High-Low Method
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 . . . . . . . . . |
2,604 |
$6,257 |
|
February . . . . . . . . |
2,856 |
$6,550 |
|
March . . . . . . . . . . . |
3,534 |
$7,986 |
|
April . . . . . . . . . . . |
1,440 |
$4,022 |
|
May . . . . . . . . . . . . |
540 |
$2,289 |
|
June . . . . . . . . . . . |
1,116 |
$3,591 |
|
July . . . . . . . . . . . . . |
3,162 |
$7,264 |
|
August . . . . . . . . . |
3,608 |
$8,111 |
|
September . . . . . . |
1,260 |
$3,707 |
|
October . . . . . . . . . |
186 |
$1,712 |
|
November . . . . . . . |
1,080 |
$3,321 |
|
December . . . . . . . |
2,046 |
$5,196 |
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 off the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent.
2. What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month?
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