Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $47,000,000 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 440,000 golfers are expected each year. Variable costs are about $17 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?

Question

Quizplus · Accepted Answer

To calculate the cost-plus price for a round of golf, we need to add the fixed costs and variable costs per golfer, and then add the desired return on assets divided by the number of golfers:

Cost per golfer = Fixed costs / Number of golfers + Variable costs per golfer
Cost per golfer = $20,000,000 / 440,000 + $17
Cost per golfer = $68.18

Now, we add the desired return on assets per golfer:

Price per golfer = Cost per golfer + (Desired return on assets / Number of golfers)
Price per golfer = $68.18 + ($47,000,000 x 12% / 440,000)
Price per golfer = $75.27

Therefore, Mountaintop golf course should charge $75.27 for a round of golf. Option C is correct.

Mountaintop Golf Course Is Planning for the Coming Season