Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 2, Problem 14E
EXERCISE 2-14 High-Low Method: Predicting Cost [L02-4, L02-5]
The Lakeshore Hotel’s guest-days of occupancy and custodial supplies expense over the last seven months were:
| Month | Guest-Daysof Occupancy | CustodialSupplies Expense |
| March …. | 4,000 | $7,500 |
| April …. | 6,500 | $8,250 |
| May …. | 8.000 | $10500 |
| June …. | 10,500 | $12,000 |
| July …. | 12,000 | $13,500 |
| August …. | 9,000 | $10,750 |
| September …. | 7.500 | $9,750 |
Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days.
Required:
1. Using the high-low method, estimate a cost formula for custodial supplies expense.
2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days?
3. Prepare a scattergraph using the data given above. Plot custodial supplies expense on the vertical axis and the number of guest-days occupied on the horizontal axis. Draw a straight line through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis.
4. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $3,973.10 per month and the variable cost to be $0.77 per guest-day. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors?
5. Using the least-squares regression estimates given in requirement 4, what custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days?
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Students have asked these similar questions
Electronio ExperGecupancy Percentage
62
Month
January
April
August
6,200
6,600
68
7,200
78
December
5,500
50
Jsing the highllow two point method to:
1 Determine the variable cost per 1poercent of occupancy
2 Estimate the fixed costs per month
3 What is the estimated total electric expense at 62 pecent of ocoupancy?
ANSWER
Month
Electronic Expenses Oooupanoy Percentage
High
August
7,200
78
Low
December
5,500
50
Difference
1,700
28
1 Variable cost per 1% of ocoupanoy =
61
2 Total variable cost of electric expense for December =
Total fixed cost of electric expense for December =
3,035.71
2,464.29
Total variable cost of electric expense for August =
Total fixed cost of electrio expense for August =
4,735.71
2,464.29
3 Using the fixed cost for December as the total fixed cost for estimation
Total variable cost of electric expense at 62%. oooupancy =
Total fixed oost of electric expense at 62% occupanoy
Estimated total electric expense at 62% occupancy =
EXERCISE 2-14 High-Low Method; Predicting Cost [L02-4, LO2-5]
The Lakeshore Hotel's guest-days of occupancy and custodial supplies ex pense over the last seven
months were:
Guest-Days
Custodial
Month
of Occupancy Supplies Expense
March
4,000
$7,500
. R.
April
May
6,500
$8,250
...
$10,500
$12,000
$13,500
$10,750
$9,750
8,000
June..
10,500
July
12,000
August ..
September
9,000
7,500
Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at
the hotel for three days is counted as three guest-days.
Required:
1. Using the high-low method, estimate a cost formula for custodial supplies expense.
Using the cost formula you derived above, what amount of custod ial supplies expense would
you expect to be incurred at an occupancy level of 11,000 guest-days?
3.
2.
Prepare a scattergraph using the data given above. Plot custodial supplies expense on the ver-
tical axis and the number of guest-days occupied on the horizontal ax is. Draw a straight line
Activity: High-Low Point Method
Month
Number of Guests
Total Costs
January
February
1,500
2,300
$143,000.00
$203,100.00
$105,450.00
March
1,000
$454,225.00
$371,225.00
$296,225.00
$353,945.00
$191,237.00
April
May
4,323
4,545
3,541
4,312
June
July
August
September
2,143
3,000
?
Chapter 2 Solutions
Managerial Accounting
Ch. 2.A - Prob. 1ECh. 2.A - Prob. 2ECh. 2.A - Prob. 3PCh. 2.A - Prob. 4PCh. 2.A - Prob. 5CCh. 2.B - Prob. 1ECh. 2.B - Prob. 2ECh. 2.B - Prob. 3PCh. 2.B - Prob. 4PCh. 2 - Prob. 1Q
Ch. 2 - Define the following: (a) direct materials, (b)...Ch. 2 - Explain the difference between a product cost and...Ch. 2 - Distinguish between (a) a variable cost, (b) a...Ch. 2 - Prob. 5QCh. 2 - Define the following terms: (a) cost behavior and...Ch. 2 - What is meant by an activity base when dealing...Ch. 2 - Managers often assume a strictly linear...Ch. 2 - Distinguish between discretionary fixed costs and...Ch. 2 - Does the concept of the relevant range apply to...Ch. 2 - What is the major disadvantage of the high-low...Ch. 2 - Prob. 12QCh. 2 - Prob. 13QCh. 2 - What is the difference between a traditional...Ch. 2 - Prob. 15QCh. 2 - Prob. 16QCh. 2 - Prob. 17QCh. 2 - Prob. 1AECh. 2 - Prob. 2AECh. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - Prob. 1F15Ch. 2 - L012, L013, L014, L015, L016 Martinez Company’s...Ch. 2 - L01–1, L01–2, L01–3, L01–4, L01–5, L01–6
Martinez...Ch. 2 - L01–1, L01–2, L01–3, L01–4, L01–5, L01–6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6
Martinez...Ch. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - EXERCISE 1—1 Identifying Direct and Indirect Costs...Ch. 2 - EXERCISE 1-2 Classifying Manufacturing Costs LO1-2...Ch. 2 - EXERCISE 1-3 Classifying Costs as Product or...Ch. 2 - EXERCISE 14 Fixed and Variable Cost Behavior LO14...Ch. 2 - Prob. 5ECh. 2 - EXERCISE 1—6 Traditional and Contribution Format...Ch. 2 - Prob. 7ECh. 2 - Prob. 8ECh. 2 - Prob. 9ECh. 2 - Prob. 10ECh. 2 - Prob. 11ECh. 2 - EXERCISE 1-12 Product and Period Cost Flows LO1–3...Ch. 2 - Prob. 13ECh. 2 - EXERCISE 2-14 High-Low Method: Predicting Cost...Ch. 2 - Prob. 15ECh. 2 - Prob. 16PCh. 2 - Prob. 17PCh. 2 - PROBLEM 1-18 Direct and Indirect Costs; variable...Ch. 2 - Prob. 19PCh. 2 - PROBLEM 2-20 High-Low Method; Predicting Cost...Ch. 2 - PROBLEM 2-21 Cost Classification [L02-1, L02-3,...Ch. 2 - Prob. 22PCh. 2 - Prob. 23PCh. 2 - Prob. 24PCh. 2 - Prob. 25PCh. 2 - Prob. 26CCh. 2 - Prob. 27C
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