Use the following information to answer question The EP Hotel has 200 rooms. Eac
ID: 2455435 • Letter: U
Question
Use the following information to answer question
The EP Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $27 per room per night of occupancy. Fixed costs total $76,000 per month.
7.
If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
A)
Total fixed costs will increase by $10,500.
B)
Net income will increase by $16,320.
C)
Net income will increase by $26,480.
D)
Total fixed costs will remain the same.
7.
If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
A)
Total fixed costs will increase by $10,500.
B)
Net income will increase by $16,320.
C)
Net income will increase by $26,480.
D)
Total fixed costs will remain the same.
Explanation / Answer
C)Net income will increase by $26,480. Particulars Existing No of Rooms 200.00 Increase in Occupancy Rate 10% Increase in Rooms Occupancy per night 20.00 No of days in Feb 28.00 Total Increase in Room Occupancy in terms of No 560.00 Room Rent@110 61,600.00 Variable Costs@27 15,120.00 Contribution = Rent - VC 46,480.00 Fixed Costs 20,000.00 Income = Cont - FC 26,480.00