Question

​Hilltop Golf Course is planning for the coming golfing season. Investors would like to earn a 15% 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 $30,000,000 for the season. About 500,000 rounds of golf are expected to be played each year. Variable costs are about $17 per round of golf. Hilltop golf course has a favorable reputation in the area ​and, therefore, has some control over the sales price of a round of golf. Using a cost-plus pricing ​approach, what sales price should Hilltop charge for a round of golf to achieve the desired​ profit?
a. $77
b. $92
c. $60
d. $43

Answer 1

Answer:

correct option is b. $92

Explanation:

given data

earn  return = 15%

assets = $50,000,000

Fixed costs = $30,000,000

golf played = 500,000 rounds

Variable costs = $17 per round

solution

we know total cost = fixed cost + variable cost

here variable cost = 500,000 × 17 per unit = 8,500,000

so total cost = 30,000,000 + 8,500,000

total cost = $38,500,000

and

return on investment is = 50,000,000 × 15%

return on investment is = $7,500,000

so desired sales is here

desired sale = $38,500,000  +  $7,500,000

desired sale = $46,000,000

so target selling price = $\frac{46,000,000}{500,000}$

target selling price = 92

so correct option is b. $92