Jacob 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 Jacob, the contribution per unit is

Given:

Rent per night = $100

Variable cost per rented room = $20

Fixed cost = $100,000

Profit last year = $20,000

To find:

Contribution of Jacob per unit

Solution:

Contribution per unit is the difference between selling price per unit and variable costs per unit. The formula is as follows,

Here, Selling price per unit is the rent in the hotel per night. On substituting the given values in the above formula we get,

Therefore, the contribution per unit is $80.

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