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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

A Mumbai hotel has 40 rooms and operates 30 days in a month. Occupancy was 75% and total costs for room services were Rs 5,40,000. If the company wants Rs 200 profit per occupied room-day, what is the charge per room-day, with the cost unit being the occupied room-day?

The charge is Rs 800 per room-day. Occupied room-days are 75% of 1,200, which is 900, so cost per unit is Rs 5,40,000 divided by 900, or Rs 600. Adding the Rs 200 profit gives Rs 800. Using available rather than occupied days would understate the cost.

  1. ARs 800Correct
  2. BRs 650
  3. CRs 600
  4. DRs 500

Explanation

Available room-days = 40 x 30 = 1,200; occupied = 75% = 900. Cost per occupied room-day = 5,40,000/900 = Rs 600. Adding profit Rs 200 gives Rs 800. Rs 600 omits profit; Rs 450 would result from dividing by 1,200, but adding 200 to that gives Rs 650, the trap.

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