Question

Rolling Hills Golf Course is planning for the coming golfing season. Investors would like to earn a ​% return on the​ company's of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be for the season. About rounds of golf are expected to be played each year. Variable costs are about per round of golf. Rolling Hills 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 costplus pricing​ approach, what sales price should Rolling Hills charge for a round of golf to achieve the desired​ profit?

Answer 1

Answer: $80.24

Explanation:

They should sell at a rate that will ensure that their costs as well as returns expected are covered.

Sales Price per round of golf = (Costs + Return expected) / No. of golf rounds

Costs = Fixed costs + Variable costs

= 20,000,000 + ( 18 * 410,000 golf rounds)

= 20,000,000 + 7,380,000‬

= $27,380,000

Return expected = 12% * 46,000,000

= $5,520,000‬

Sales Price per round of golf = (27,380,000 + 5,520,000‬) / 410,000

= $80.24