Hotels don't manufacture anything — they sell nights, meals, and experiences. That's why they use Service (Operating) Costing, where the goal is to find how much it costs to deliver one unit of service. In hotels, we track costs at three levels: the room department, the food & beverage department, and ancillary services (laundry, gym, spa). Getting this right helps management price rooms profitably and spot where money is leaking.
The most important concept here is the cost unit. For hotels, common cost units are: cost per room per day (also called cost per room-night), cost per occupied room, and cost per cover (for the restaurant). Don't confuse rooms available with rooms occupied — examiners love testing this. Room Days Available = Total Rooms × Days in period. Room Days Occupied = Actual rooms used by guests. The Occupancy Rate = (Room Days Occupied ÷ Room Days Available) × 100. This percentage is crucial — a hotel with 70% occupancy spreads fixed costs over far fewer rooms than one at 90%, making unit costs higher.
Hotel costs split neatly into Fixed (depreciation, permanent staff salaries, rent, insurance — stay the same whether the hotel is full or empty), Variable (food materials, laundry supplies, guest amenities — rise with occupancy), and Semi-variable (power, casual labour, telephone). In the exam, you'll be asked to prepare a Cost Statement showing total cost and cost per room-night or per occupied room. The key formula: Cost per Occupied Room = Total Cost ÷ Room Days Occupied. For the restaurant, Cost per Cover = Total Restaurant Cost ÷ Number of Covers (meals) served. This is asked frequently as a 6–8 mark question where you must compute occupancy, classify costs, build the cost statement, and derive the per-unit figure.