Reference no: EM132500567

The following data have been gathered by the owner of the Crestview Motel, in order to better understand the costs of operating the motel.

1. Wages for desk clerks amount to $18,400/month.
2. Base charge for utilities is $3,340/month.
3. An additional $1.80/night is incurred on average for each occupied room.
4. Fixed costs for taxes, insurance, advertising, etc. amount to $3,400/month.
5. The complimentary breakfast provided to guests costs on average $3.20 per occupied room.
6. Data regarding housekeeping costs for the last nine months are given below.

Cost ($)                         Rooms occupied

8,370                          940

7,990                           880

10,290                         1,120

9,120                           1,000

6,870                            740

9,345                            1,070

7,470                              800

10,150                            1,150

9,390.                              950

Question a) Using the hi-lo method, develop an equation for the behavior of housekeeping costs, in the form Y = a + bX

Question b) Develop an equation for total costs of operation, in the form Y = a + bX

Question c) Using your equation, forecast total operating cost if 1,250 rooms are occupied

Question d) Why might your answer to part c be unreliable?

Question e) What is the marginal cost of an occupied room? How might this information be of use to the owner?