E6-34A Determine cost behavior and predict operating costs

(Learning Objective 2)

Sun Inn Hotel is a budget hotel with 90 rooms. In the previous year, when the hotel was 80% occupied monthly operating costs were $9,800. When the occupancy increases to 90% the monthly operation costs increases to $10,502. Due to the global financial crisis, the tourism industry is not as good as in the previous year. The owner of the hotel is worrying that the occupancy of his hotel will drop to 60%. Assuming the same relevant range, what can the owner expect his operating costs to be if occupancy decreases to 60%?