Question

Hotel Majestic is interested in estimating fixed and variable costs so that the company can make more accurate projections of costs and profit.The hotel is in a resort area that is particularly busy from November through February. In July and August, however, the hotel has only a 50 percent occupancy rate.

Required Classify each of the following costs as fixed (F), variable (V), or mixed (M) with respect to the number of hotel guests per month: a. Depreciation of the building b. Salaries of restaurant staff c. Salaries of administrative staff (hotel manager, desk clerks, accountants, etc.) d. Soap, shampoo, and other toiletries in rooms ' e. Laundry costs (cost of linens, cleaning products, depreciation of laundry equipment, etc.) f. Food and beverage costs g. Grounds maintenance

Answer 1

a. Depreciation of the building - F - because it doesn't change with number of hotel guests

b. Salaries of restaurant staff -M - because some portion of salaries is fixed while some portion of it is variable

c. Salaries of administrative staff (hotel manager, desk clerks, accountants, etc.) - F - because it doesn't change with change in number of hotel guests.

d. Soap, shampoo, and other toiletries in rooms ' - V - because it changes with change in number of hotel guests

e. Laundry costs (cost of linens, cleaning products, depreciation of laundry equipment, etc.) -M- some of its expenses are fixed in nature such as depreciation while some of its expenses are variable in nature

f. Food and beverage costs - V - because it changes with change in number of hotel guests

g. Grounds maintenance - F - because it doesn't change with change in number of hotel guests.