Hotel Majestic is interested in estimating fixed and variable costs so that the

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

Explanation / Answer

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.

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