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Question

The Royal Canadian Lodge in Banff, Alberta, 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 1,736 $4,127    February 1,407 3,207   March 2,536 5,383   April    960 2,857   May    630 2,871   June    744 2,696   July 2,108 4,670   August 1,406 3,148   September    480 1,391   October    224 1,988   November    720 2,454   December 1,364 3,529  

Page 320

Required:


-Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. Round the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent.
-What factors other than occupancy-days are likely to affect the monthly variation in electrical costs?
BRIEF EXERCISE 6-3

Applying the Scattergraph Method [LO2 - CC10]

Oki Products, Ltd. has observed the following processing costs at various levels of activity over the past 10 months:

   Month Units
Produced Processing
Cost     1 2,500 $28,000       2 11,000  52,000     3 15,000  59,000     4 5,500 38,000     5 9,000 47,000     6 8,500 52,000     7 7,500 44,000     8 7,000 41,000     9 11,500  52,000   10 6,000 41,000  

Required:


-need a scattergraph by plotting these data on a graph. Plot cost on the vertical axis and units produced on the horizontal axis. Fit a line to your plotted points by visual inspection.
-

-What is the approximate monthly fixed cost? The approximate variable cost per unit processed? Show your computations.

Step-by-step answer

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