FIXED COST AND VARIABLE COST IN THE HOTEL INDUSTRY

The word “fixed cost” and “variable costs” in the hotel industry operation are been used to distinguish between the costs that have a direct link to the hotel occupancy and those have no direct link or connection to the occupancy or business.

FIXED COST

A fixed cost is such an expense which are been never replaced as the manufactures volume increases or decreases within a pertinent range. However, the fixed costs are fastened in a place as prolonged as operations remain within a certain size. Fixed costs are not as much manageable as variable costs because they are not based on their volume or operation.

Therefore, fixed costs are not been affected by any changes. Generally, they do have a less direct relationship to the business volume, that’s why they do not change significantly when the number of sales increases or decreases.

The word fixed shouldn’t be taken to signify static or unchanging, but just to point out any changes that may take place in such costs are related only indirectly or far away to changes in volume.

Examples of Fixed costs

Land and building taxes to the government.
Human Resources.
Sales & Marketing.
Employee’s wages.
The health premium of the hotel employees.
Payroll.
The expenses of the reservation.
The cost for the advertising.
Fixed plans for telephone and internet.
The external auditing cost of yearly.
The contract of outsource services i.e. security services, housekeeping, etc for a fixed amount in a month.
The fees of the annual maintenance contract for all equipment, machinery and hotel management software.
In-house movies and satellite TV.
Music entertainment.
Provision.
Subscription of newspaper, magazine, etc.
Also, the other fixed charges

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VARIABLE COSTS

The variable cost is such expenses that generally differ in portion to the volume of goods or services that a business generates. However, the costs differ determining on the volume of activity. The costs usually increase as the volume of activities increases and do decrease as the volume of activities decreases.

The variable costs are been distinctly linked to the hotel occupancy and business volume. When the business volume or occupancy increases, the variable costs increase, as the hotel occupancy decreases, the variable costs do decrease.