Yewston Hotel bases its budgets on guest-days. The hotel's static budget for April appears below:
-The total fixed cost at the activity level of 3,400 guest-days per month should be:
A)$52,360
B)$35,420
C)$95,880
D)$64,860

Question

Yewston Hotel bases its budgets on guest-days. The hotel's static budget for April appears below:
-The total fixed cost at the activity level of 3,400 guest-days per month should be:
A)$52,360 
B)$35,420 
C)$95,880 
D)$64,860

Quizplus · Accepted Answer

From the given data, we know that the total fixed cost at the activity level of 2,800 guest-days per month is $48,360. We can use the high-low method to find the total fixed cost at the activity level of 3,400 guest-days per month:
Variable cost per guest-day = (Total cost at high activity level - Total cost at low activity level) ÷ (High activity level - Low activity level)
Variable cost per guest-day = ($50,320 - $48,360) ÷ (3,000 - 2,800) = $98
Using the variable cost per guest-day, we can now find the total fixed cost at the activity level of 3,400 guest-days per month:
Total cost = Fixed cost + (Variable cost per guest-day x Activity level)
$50,320 = Fixed cost + ($98 x 3,000)
Fixed cost = $50,320 - $294,000
Fixed cost = $35,420
Therefore, the total fixed cost at the activity level of 3,400 guest-days per month is $35,420.

Yewston Hotel Bases Its Budgets on Guest-Days