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A hotel has fixed costs of $18,000 a month, charges $110 per room night and incurs $10 of variable cost per room night. What is its monthly breakeven point?
A100 room nights
B150 room nights
C300 room nights
D180 room nights
Answer & Solution
Correct answer: D. 180 room nights
1. A service business breaks even on the same equation, with the room night as the unit.
2. Contribution margin per room night is $110 minus $10, which is $100.
3. $18,000 divided by $100 gives 180 room nights per month.
4. Against a monthly capacity of 300 room nights, 180 means a 60% occupancy rate is needed just to cover costs.
5. 100 room nights becomes the answer only if the nightly rate is lifted to $190.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.3.5 Breakeven Analysis for a Service Business_
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