Cost Accounting · Operating Costing - Transport, Hotel and Healthcare
Hotel Costing and Room Tariff Calculation
Updated 10 October 2026 · Fact-checked
Hotel costing is a form of operating costing. Its main cost unit is the occupied room-day. You total the hotel's costs for the period, divide by room-days actually occupied to get cost per room-day, then add the required profit margin to fix the tariff. Occupancy decides the divisor.
Understand Hotel Costing
A hotel sells a service, not a product. There is no stock of finished goods. A room that stays empty tonight cannot be sold tomorrow. So hotel costing uses operating costing: you collect costs for a period and divide by the service units delivered.
The usual cost unit for room costs is the room-day (one room occupied for one day). Always separate available room-days (rooms × days open) from occupied room-days (available room-days × occupancy %). Costs are incurred on all rooms, but revenue comes only from occupied ones. That is why occupancy matters so much.
A hotel also runs other services: restaurant, laundry, banquet and so on. In exams, you are often told to cost the room service only, or to treat other services separately. Read the question carefully and include only the costs of the service being priced.
Hotel costs are grouped as fixed or standing charges (manager's salary, depreciation, insurance, licence fees, property tax) and variable or running charges (laundry, linen, room servicing, electricity usage, consumables). Some are semi-variable and need splitting as the question directs.
To fix the tariff, you find total cost, add the profit (as a percentage of cost or of tariff, as stated), and divide by occupied room-days. If the tariff is to cover tax or a discount, adjust as the question specifies.
Key rules to remember
- Available room-days
- Available room-days = Number of rooms × Number of days open
- Use the days the hotel is actually open. Check whether the year is 365 or 360 days as stated.
- Occupied room-days
- Occupied room-days = Available room-days × Occupancy %
- Occupancy may be given for the whole year or separately for seasons. Compute each season and add.
- Occupancy percentage
- Occupancy % = Occupied room-days ÷ Available room-days × 100
- Use this to compare performance or find break-even occupancy.
- Cost per room-day
- Cost per room-day = Total cost of room service ÷ Occupied room-days
- Divide by occupied days, not available days.
- Tariff with margin on cost
- Tariff = Cost per room-day + Profit % × Cost per room-day
- Use when profit is stated on cost.
- Tariff with margin on tariff
- Tariff = Cost per room-day ÷ (1 − Profit % on tariff)
- Use when profit is stated on sales. For 20% on tariff, divide by 0.80.
- Break-even occupancy
- Break-even room-days = Fixed cost ÷ (Tariff − Variable cost per room-day)
- Divide by available room-days to express as occupancy %.
How to solve Hotel Costing questions
Use this order for any hotel costing question. It keeps your working clean and earns step marks.
- 1Read the question and note what is being priced (rooms only, or rooms plus other services) and the period (month, year, season).
- 2Compute available room-days (rooms × days open), then occupied room-days using the given occupancy for each period.
- 3List all costs for the service. Convert annual figures to the period if needed, and calculate items such as depreciation or staff pay from the data given.
- 4Separate fixed and variable costs if the question asks, or if you need the break-even.
- 5Prepare a neat cost statement showing each item and the total cost.
- 6Divide total cost by occupied room-days to get cost per room-day.
- 7Add the profit margin on the base stated (cost or tariff) to get the tariff per room-day.
- 8Show the final answer clearly and add a one-line comment if the question asks for interpretation.
Quickest way: Total cost to tariff in four moves
When to use it: Use when the question is short and asks only for the room tariff or cost per room-day and the costs are straightforward.
- Write occupied room-days first: rooms × days × occupancy.
- Sum all relevant costs once in a single column.
- Divide by occupied room-days, then apply the margin factor (× 1.20 for 20% on cost, ÷ 0.80 for 20% on tariff).
- Check that the tariff is higher than cost per room-day and that you have not divided by available room-days.
Common mistakes in Hotel Costing
Dividing total cost by available room-days instead of occupied room-days.
Students see the number of rooms and days first and use it directly.
Fix: Always multiply by occupancy first. Write 'occupied room-days' as the divisor before dividing.
Treating profit on tariff as profit on cost.
Both are called 'margin' and the wording is skimmed.
Fix: If profit is on tariff, divide cost by (1 − profit %). If on cost, multiply by (1 + profit %).
Including costs of other services such as the restaurant in the room cost.
All hotel expenses are listed together in the question.
Fix: Include only costs linked to the service being priced, unless the question says to spread common costs.
Using the wrong number of days or ignoring seasons with different occupancy.
Students apply one occupancy figure to the whole year.
Fix: Compute occupied room-days separately for each season, then add them.
Forgetting to convert depreciation, salary or other items to the period.
Data are given as rates, percentages or monthly figures.
Fix: Calculate each item for the full period shown in the question before totalling.
Worked examples
Example 1
A hotel has 50 rooms and is open 360 days in a year. Average occupancy is 80%. Annual costs for the rooms are: staff salaries ₹12,00,000; electricity ₹3,60,000; linen and laundry ₹2,40,000; repairs ₹1,80,000; depreciation ₹6,00,000; other expenses ₹4,32,000. Calculate the cost per room-day and the tariff if the hotel wants a profit of 25% on cost.
Show the solution
- Available room-days = 50 × 360 = 18,000.
- Occupied room-days = 18,000 × 80% = 14,400.
- Total cost = 12,00,000 + 3,60,000 + 2,40,000 + 1,80,000 + 6,00,000 + 4,32,000 = ₹30,12,000.
- Cost per room-day = 30,12,000 ÷ 14,400 = ₹209.17 (approx.).
- Profit at 25% on cost = 209.17 × 25% = ₹52.29 (approx.).
- Tariff = 209.17 + 52.29 = ₹261.46 (approx.).
Answer: Cost per room-day is about ₹209.17 and the tariff per room-day is about ₹261.46.
Example 2
A lodge has 40 rooms and is open 300 days. Occupancy is 90% in the first 150 days and 60% in the remaining 150 days. Total annual cost of the rooms is ₹26,46,000. The lodge wants a profit of 20% on tariff. Find the tariff per room-day.
Show the solution
- Available room-days in the first period = 40 × 150 = 6,000. Occupied = 6,000 × 90% = 5,400.
- Available room-days in the second period = 40 × 150 = 6,000. Occupied = 6,000 × 60% = 3,600.
- Total occupied room-days = 5,400 + 3,600 = 9,000.
- Cost per room-day = 26,46,000 ÷ 9,000 = ₹294.
- Profit is 20% on tariff, so cost is 80% of tariff.
- Tariff = 294 ÷ 0.80 = ₹367.50.
Answer: Cost per room-day is ₹294 and the tariff per room-day is ₹367.50, which includes a profit of ₹73.50.
Exam tips
- Write the room-day workings at the top of your answer. Examiners award marks for available and occupied room-days even if a later step goes wrong.
- Underline whether profit is on cost or on tariff before you start calculating.
- In MCQs, the usual traps are using available instead of occupied room-days and using the wrong margin base. Check both before choosing an option.
- Present costs in a vertical statement with a total, then show cost per room-day and tariff as separate lines.
- If the question gives different occupancies for different seasons, show a small table of season, days and occupied room-days.
Practice questions from Operating Costing - Transport, Hotel and Healthcare
- In transport operating costing, which of the following is classified as a fixed (standing) charge rather than a running charge?
- A truck of a Surat firm runs 120 km with 6 tonnes, 80 km with 10 tonnes and returns 200 km empty. Total operating cost for the trip is Rs 7,…
- A hotel has 40 rooms and operates for 30 days in a month. In that month, 960 room-days were occupied. What is the occupancy percentage?
- A bus runs 50 km each day for 25 days in a month, carrying an average of 40 passengers on every trip, all passengers travelling the full dis…
- In a hotel, which of the following is the most appropriate cost unit for computing the cost of room accommodation?
Hotel Costing in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Hotel Costing: frequently asked questions
What is the cost unit in hotel costing?
The usual cost unit is the occupied room-day, meaning one room occupied for one day. Other services may use units such as meals served or per guest-day if the question says so.
How do I calculate room rent per day with a profit margin?
Find total room cost and divide by occupied room-days to get cost per room-day. Then add the margin. If profit is on cost, multiply by (1 + profit %). If it is on tariff, divide by (1 − profit %).
Why do we divide by occupied room-days and not available room-days?
Revenue comes only from occupied rooms, so the whole cost must be recovered from them. Dividing by available room-days would under-price the room and the hotel would not reach its target profit.
How is break-even occupancy found in a hotel?
Divide fixed costs by the contribution per room-day, which is tariff minus variable cost per room-day. This gives break-even room-days. Divide by available room-days and multiply by 100 to get the break-even occupancy percentage.