# Hotel Industry Costing — Equivalent Rooms Concept
## Cost Unit
For hotels, the cost unit is cost per room per day.
## Why Equivalent Rooms?
A hotel usually has multiple room categories (Normal, Deluxe, Super Deluxe), each priced differently. To allocate cost fairly across categories, we convert all rooms into a common base unit called the Equivalent Room.
## Equivalent Room Formula
$$\text{Equivalent Rooms} = \Sigma (\text{No. of rooms in category} \times \text{Price ratio of that category})$$
The Normal room is taken as the base = 1, and other categories are multiples (e.g., Deluxe = 2, Super Deluxe = 2.5).
## Steps to Calculate Cost per Room
Step 1: Convert all rooms into Equivalent Rooms using the price ratios.
Step 2: Cost per Equivalent Room =
$$\frac{\text{Total Cost}}{\text{Total Equivalent Rooms}}$$
Step 3: Cost of each category =
Cost per Equivalent Room × Price Ratio of that category.
## Note on 'Per Day'
If the total cost is for a year, divide by 365 (or operational days as given) to get cost per room per day.