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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...

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.
Required:
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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