Question

Jack rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20, to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For Jack, the contribution per unit is
A. $100.
B. $80.
C. $800.
D. $1,000.
E. It cannot be determined from the information provided.

Answer 1

Answer:

$80

Explanation:

Contribution per unit is a strategy of calculating incremental profit of a unit of an item sold to cover the fixed costs and the overall profit.

This is done by deducting the unit variable cost form the unit selling price.

Workings.

Unit selling price = $100

Unit variable cost = $20

Contribution per unit = $(100-20)

$80

Answer 2

Answer:

Option B is the most appropriate,$80

Explanation:

Contribution implies the portion of sales price which contributes towards recovering the fixed costs and by extension to net income after fixed cost has been deducted.

The contribution per unit can be computed by deducting variable cost per unit from selling price per unit:

Selling price                  $100

variable cost                  ($20)

Contribution                   $80

Option A is strictly the selling price,hence it is wrong

Options C& D are out of context as they cannot be related to the scenario