Question

Mountaintop golf course is planning for the coming season. Investors would like to earn a​ 12% return on the​ company's $45 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be​$20,000,000 for the golfing season. About​ 400,000 golfers are expected each year. Variable costs are about​ $15 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
costminus−plus
Approach, what price should Mountaintop charge for a round of​golf?
A.$51.50
B.$78.50
C. ​$ 0.21
D. $71.00

Answer 1

Answer:

The correct option is B

Explanation:

The return on assets would be:

Return on assets (ROA)= Assets × Return

                                      = $45,000,000 × 12%

                                     = $5,400,000

Return per customer = ROA / Number of golfers

                                  = $5,400,000 / 400,000

                                  = $13.50

Fixed Cost per Customer = Fixed Cost / Number of golfers

                                          = $20,000,000 / 400,000

                                         = $50

Cost to be charged per customer = Profit + Fixed Cost + Variable Cost

                                                        = $13.50 + $50 + $15

                                                        = $78.50