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I communicated with BDC via their messaging system about the way children should be set up. The answers I was getting didn't really make sense to me and I felt they were missing my point. After four different replies from three different people at BDC, I still find the solution unsatisfactory. However it seems to be the way it has to be.
I had "Yes" selected to the question "Can children stay in existing beds?" as you say you do and the screenshot in previous reply shows. It makes sense to me - existing beds, not extra beds, right? Apparently not. I now have "No" selected.
Here's a part of one of the replies I received from BDC:
"...I wanted to advise that when allow X amount of children to stay in existing beds, it will allow guests to book for over the maximum occupancy, as well as you would be charged commission on these costs. If you state you can accept children, and either choose extra beds or any other option except existing beds, this will not allow any room to be booked for over the maximum occupancy,..."
This is still quite wrong in my mind but it seems to be the way it has to be set up for my purposes in any case. I would be very interested to hear from you if you've been able to communicate with BDC and what the outcome is. BTW, we are set up with the Occupancy Based pricing model.