Antoine rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20, to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For Antoine, the contribution per unit is
A)$100.
B)$80.
C)$800.
D)$1,000.
E)$40

Question

Quizplus · Accepted Answer

- Contribution per unit = Price per unit - Variable cost per unit
- Price per unit = $100 (given)
- Variable cost per unit = $20 (given)
- Contribution per unit = $100 - $20 = $80
- Total contribution = (Price per unit - Variable cost per unit) x Number of units sold
- Total contribution = $80 x X (where X is the number of rooms rented)
- Total contribution last year = Profit + Fixed costs
- $80X = $20,000 + $100,000
- $80X = $120,000
- X = 1500 rooms
- Therefore, the contribution per unit is $80.

Antoine Rents Rooms in His Hotel for an Average of $100