Question

Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $50,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $24,000,000 for the golfing season. About 440,000 golfers are expected each year. Variable costs are about $16 per golfer. Mountaintop golf course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Using a cost-plus approach, what price should Mountaintop charge for a round of golf?

Answer 1

Answer:

Mointaintop should charge 84.18 dollars per round of golf to achieve his desired return.

Explanation:

return:

50,000,000 x 12% = 6,000,000

fixed cost: 24,000,000

Variable cost: 16 per golfer

golfers expected 440,000

It should price to pay up the variable cost, fixed cost and achieve the 12% return:

$(S_{units}-V_{units})Q -Fixed = Return$

$(S-16)440,000 -24,000,000 = 6,000,000$

$440,000S -7,040,000 = 6,000,000 + 24,000,000$

$440,000S = 37,040,000$

$S = 37,040,000 \div 440,000$

S = 84,18181818181818

It should charge per round 84.18 dollars