CA Intermediate · Cost and Management Accounting · Service Costing
Lotus Hospitality runs a hotel with 50 rooms open 30 days in a month. Occupancy is 80% in the month. Fixed costs are Rs 3,60,000 and variable cost is Rs 200 per occupied room-day. The hotel wants a profit margin of 20% on the room rent charged. What rent per room-day should it charge (nearest rupee not required; figure is exact)?
The hotel should charge Rs 625 per room-day. Occupied room-days are 1,200, total cost is Rs 6,00,000, so cost per room-day is Rs 500. Since profit is 20% of the rent, rent equals 500 divided by 0.80, which is Rs 625.
- ARs 600
- BRs 625Correct
- CRs 750
- DRs 500
Explanation
Occupied room-days = 50 x 30 x 80% = 1,200. Variable cost = 1,200 x 200 = 2,40,000. Total cost = 2,40,000 + 3,60,000 = 6,00,000. Cost per room-day = 500. Profit is 20% on sales, so rent = 500 / 0.80 = Rs 625. Adding 20% on cost gives Rs 600, which is the key distractor error. Check: 625 x 1,200 = 7,50,000; profit 1,50,000 = 20%.
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