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A hotel records rooms revenue of $84,000 and total variable costs of $32,900 for the month. What is its contribution margin?
A$38,900
B$32,900
C$51,100
D$12,200
Answer & Solution
Correct answer: C. $51,100
1. Variable costing suits a service business just as well, with the room night as the unit.
2. Revenue is 700 room nights times $120, which is $84,000.
3. Variable costs of selling, food, supplies and utilities total $32,900.
4. Contribution margin is $84,000 minus $32,900, which is $51,100.
5. $38,900 is the total of the fixed costs, which are deducted after this line.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.6 Contribution Margin Analysis_
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