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 completely full throughout the entire year is:
A) $5,475,000
B) $4,275,000
C) $3,180,000
D) $(1,188,000)

Question

Quizplus · Accepted Answer

The net income is calculated by subtracting total costs from total revenue. Total revenue is $50 per room * 300 rooms * 365 days = $5,475,000. Total variable costs are $10 per room * 300 rooms * 365 days = $1,095,000. Total costs are fixed costs ($1,200,000) + variable costs ($1,095,000) = $2,295,000. Net income is $5,475,000 - $2,295,000 = $3,180,000.

Suppose a Holiday Inn Hotel Has Annual Fixed Costs Applicable