Links Golf Course is planning for the coming golfing season.Investors would like to earn a 15% return on the company's $58,000,000 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 $15 per round of golf.Links Golf Course is a price-taker and will not be able to charge more than its competitors,who charge $78 per round of golf.Compute the operating profit that will be earned.

Question

Quizplus · Accepted Answer

To calculate the operating profit, we need to first calculate the total revenue and total cost.

Total revenue = Price per round x Number of rounds = $78 x 500,000 = $39,000,000

Total cost = Fixed cost + Variable cost per round x Number of rounds 
= $30,000,000 + ($15 x 500,000) 
= $37,500,000

Operating profit = Total revenue - Total cost 
= $39,000,000 - $37,500,000 
= $1,500,000

Therefore, the operating profit that Links Golf Course will earn is $1,500,000.

Links Golf Course Is Planning for the Coming Golfing Season