Reference no: EM132480871

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

Point 1: Wages for desk clerks amount to $18,400/month.

Point 2: Base charge for utilities is $3,340/month.

Point 3: An additional $1.80/night is incurred on average for each occupied room.

Point 4: Fixed costs for taxes, insurance, advertising, etc. amount to $3,400/month.

Point 5: The complimentary breakfast provided to guests costs on average $3.20 per occupied room.

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?