EXERCISE 5-12 High-Low Method; Predicting Cost [ LO1 , LO3 ]
Resort Inns, Inc., has a total of 2,000 rooms in its nationwide chain of motels. On average, 70% of the
rooms are occupied each day. The company’s operating costs are $21 per occupied room per day at
this occupancy level, assuming a 30-day month. This $21 fi gure contains both variable and fi xed cost
elements. During October, the occupancy rate dropped to only 45%. A total of $792,000 in operating
cost was incurred during October.
1. Estimate the variable cost per occupied room per day.
2. Estimate the total fi xed operating costs per month.
3. Assume that the occupancy rate increases to 60% during November. What total operating costs
would you expect the company to incur during November?
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