Question

In one year, the Hotel by the Shore incurred $100,000 in fixed costs. Because the hotel booked 10,000 room nights, its total variable cost is $100,000 (10,000 room nights × $10 per room). Thus, its total cost is
a. $10,000.
b. $200,000.
c. $20,000
d. $100,000.
e. $120,000.

Answer 1

Answer:

b. $200,000

Explanation:

Total costs is the addition of fixed costs and variable costs. Fixed costs are those costs that do not change with the level of output. However, as output increases, they do get spread over a large number of units, thus fixed cost per unit of output will be less with more units. Variable costs on the other hand fluctuate with the level of output, in this case, with the number of hotel rooms booked.

Total cost (TC) = Fixed Costs (FC) + Variable Costs (VC)

= $100,000 + $100,000 = $200,000