Question

You run a hotel with 200 rooms. Fixed daily cost is $1500 which includes staff salary and property charges, maintenance cost of hospital is additional $300 daily. Variable cost per room is $15 which includes cleaning, utility cost etc. You charge $100 per room per day. You sold 50 rooms today, how much profit did you earn.

a) 2000, b) 3000, c) 2500, d) 2450

You run a hospital with 100 rooms. Fixed daily cost is $1000 which includes staff salary, property charges, maintenance etc. Variable cost per room is $10 which includes cleaning, equipment rentals, utility cost etc. You charge $50 per room per day. You sold 30 rooms today, how much revenue did you earn.

a) 1500, b) 500, c) 5000, d) 100

A vendor sells hotdogs at $15 /piece. For every hot dog he spends $12 in the raw material. Additionally, he spends $1 for packing each hotdog and monthly $50, $20, $10 as food truck rent, electricity and other expenses respectively. How much is the vendor contributing to covering his fixed costs or generating profits (contribution margin)?

a) 2, b) 5, c) 6, d) 3

Answer 1

First Question -

Revenue from rooms sold is 50 * 100 = $5000

- Variable cost per room is 15*50 = $750

- Fixed cost is $1500+$300 = $1800

Profit for the day = 5000-750-1800 = $2450

Second Question -

Revenue from rooms sold is 50*30 = 1500

- Variable cost per room is 10*30 = 300

- Fixed cost is $1000

Hence the Profit for the day is 1500-300-1000 = $200

Note - Variable cost will be incurred only when the operations or production takes place. However fixed cost is incurred irrespective of the operations

Third Question -

Let us find out the contribution

Contribution is nothing but the sale price minus the variable cost. It is the amount let out after meeting the variable cost inorder to cover the fixed costs.

Accordingly

Contribution = Price of the hot dog - Variable cost incurred

=15 -12-1 = $2 per hot dog

Here variable cost is raw material and packing cost