Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel, average daily room rents of $50, and average variable costs of $10 for each room rented.It operates 365 days per year.The amount of net income on rooms that will be generated if the hotel is half full throughout the entire year is _____.
A)$1,192,500)
B)$1,590,000
C)$2,737,500
D)$990,000

Question

Quizplus · Accepted Answer

Half full for a 300-room hotel means 150 rooms occupied per day. The total revenue from the rooms will be:
$50 per room x 150 rooms = $7,500 per day
The total variable costs will be:
$10 per room x 150 rooms = $1,500 per day
The total annual revenue will be:
$7,500 per day x 365 days = $2,737,500
The total annual variable costs will be:
$1,500 per day x 365 days = $547,500
The total annual fixed costs are $1.2 million
So, the net income will be:
$2,737,500 - $547,500 - $1.2 million = $990,000
Therefore, the answer is D) $990,000.

Suppose a Holiday Inn Hotel Has Annual Fixed Costs Applicable