Jason rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20. His fixed costs are $100,000 and his target profit is $20,000. For Jason, to earn his target profit, he will need to rent out ________ rooms.
A) 100
B) 1,500
C) 20,000
D) 1,000
E) It cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

To earn his target profit, Jason needs to cover his fixed costs and variable costs, and then make $20,000 in profit.Fixed costs: $100,000Variable cost per room: $20Target profit: $20,000Let x be the number of rooms Jason needs to rent out.Total revenue = $100xTotal variable cost = $20xTotal cost = $100,000 + $20xProfit = Total revenue - Total costWe can set up the following equation:$100x - ($100,000 + $20x) = $20,000$100x - $100,000 - $20x = $20,000$80x = $120,000x = $120,000 / $80x = 1,500Therefore, Jason needs to rent out 1,500 rooms to earn his target profit.

Jason Rents Rooms in His Hotel for an Average of $100