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20 December, 20:29

Suppose a hotel has annual fixed costs applicable to its rooms of $2.5 million for its 250-room hotel. Average daily room rents are $65 per room and average variable costs are $15 for each room rented. It operates 365 days per year. If the hotel is completely full throughout the year, what is net income for one year?

A) $1,275,000

B) $1,780,500

C) $2,062,500

D) $2,225,750

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Answers (1)
  1. 20 December, 20:39
    0
    Option (C) is correct.

    Explanation:

    Given that,

    Total Fixed cost = $2,500,000

    Total number of rooms = 250

    Number of days in a year = 365

    Daily rent per room = $65

    Variable cost per room = $15

    Contribution margin per room:

    = Daily rent - Variable cost per room

    = $65 - $15

    = $50

    Total contribution margin for the year:

    = Number of days in a year * Contribution margin per room * Total number of rooms

    = 365 * $50 * 250

    = $45,62,500

    Therefore, the net income for one year is calculated as follows:

    = Total contribution margin for the year - Fixed cost

    = $4,562,500 - $2,500,000

    = $ 20,62,500
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