High Low Method

[reeree]

I need help:

April May June
Occupancy 1,500 1,650 1,800
Day manager salary $4,200 $4,200 $4,200
Night manager salary 3,700 3,700 3,700
Cleaning staff 15,300 15,600 15,900
Depreciation 12,000 12,000 12,000
Complimentary continental breakfast: food and beverages
4,600 5,300 5,800
Total $39,800 $40,800 $41,600


Calculate the fixed cost per month and the variable cost per occupied room using the high-low method.

[shunmas]

Month------Occupancy------Total Cost (£)

April----------1500-------------39,800
May----------1650-------------40,800
June----------1800-------------41,600

-------------TC (£)----------Occupancy (Rooms)
High---------41,600-----------1800
Low--------(39,800)----------(1500)
-------------1800------------300

Variable Cost Per Room = 1800/300 = £6 per room
TVC = 6 x 1800 = 10,800
Subtract TVC from TC and we get TFC
TFC = 30,800

[shunmas]

Oh wait...TC = TFC + TVC

41,600 = TFC + 10,800
41,600 - 10,800 = TFC
30,800 = TFC

Cheerz!

[shunmas]

Reeree!

There is also one thing, as you can see in the question we have some fixed cost like manager's salary, night manager's salary. If you add them all for a single month, then it will not give you a single Variable cost per room.

Therefore, we will use here Total Cost and Room Occupancy, which will give us a same VCPR.

y------= a-+--bx
41,600 = FC + (6)(1800)
You get 30,800 same even if you use Linear Cost Function.

Hope it helps.