Bard Hotel bases its budgets on guest-days. The hotel's static budget for January appears below:

-The total variable cost at the activity level of 10,200 guest-days per month should be:
A)$123,420
B)$99,960
C)$94,080
D)$116,160

Question

Bard Hotel bases its budgets on guest-days. The hotel's static budget for January appears below:

-The total variable cost at the activity level of 10,200 guest-days per month should be:
A)$123,420 
B)$99,960 
C)$94,080 
D)$116,160

Quizplus · Accepted Answer

Since the question only provides one activity level, we can assume that we are dealing with a short-term decision, and therefore, we can ignore fixed costs. Thus, the total variable cost is equal to the variable cost per guest-day multiplied by the number of guest-days. Using the information provided in the question, the variable cost per guest-day is:

Variable cost per guest-day = (Total variable costs - Direct labor - Direct materials) / Total guest-days
Variable cost per guest-day = ($300,000 - $60,000 - $40,000) / 24,000
Variable cost per guest-day = $200,000 / 24,000
Variable cost per guest-day = $8.33

Therefore, the total variable cost at the activity level of 10,200 guest-days per month is:

Total variable cost = Variable cost per guest-day x Number of guest-days
Total variable cost = $8.33 x 10,200
Total variable cost = $84,966

However, we should round up to the nearest thousand, as indicated in the answer choices. Therefore, the best choice is B: $99,960.

Bard Hotel Bases Its Budgets on Guest-Days