The Moonlight Hotel has 200 rooms. Each room rents at $110 per night and variabl

Question

The Moonlight Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $16 per room per night of occupancy. Fixed costs total $84,000 per month.
If the hotel spends an additional $10,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 5% (going from 95% to 100%). What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
a.) Total Fixed Costs will increase by $10,500
b.) Net Income will increase by $16,320
c.) Net Income will increase by $26,320
d.) Total Fixed Costs will remain the same

Explanation / Answer

c.) Net Income will increase by $26,320

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