A small family-run, 60-room hotel is open all the year round. Variable costs per guest are $ 15 and total annual overhead $ 1.6 million. Rooms division absorbs 60% of the overheads and occupancy is expected to be 55%. If the hotel has a desired mark up of 35%, how much would they charge for a room?
A) $ 128
B) $ 137.50
C) $ 152
D) $ 160

Question

A small family-run, 60-room hotel is open all the year round.  Variable costs per guest are $ 15 and total annual overhead $ 1.6 million. Rooms division absorbs 60% of the overheads and occupancy is expected to be 55%. If the hotel has a desired mark up of 35%, how much would they charge for a room?
A) $ 128
B) $ 137.50
C) $ 152
D) $ 160

Quizplus · Accepted Answer

Explanation:Rooms division overhead = 60% of $ 1.6 million = $ 960,000Fixed cost per room = $ 960,000 / 60 rooms = $ 16,000Variable cost per room = $ 15Total cost per room = $ 16,000 + $ 15 = $ 16,015Selling price per room = $ 16,015 / (1 - 35%) = $ 128

A Small Family-Run, 60-Room Hotel Is Open All the Year