Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $37,000,000 of assets. The company primarily incurs fixed costs to maintain the swimming pool. Fixed costs are projected to be $12,600,000 for the year. About 540,000 members are expected to swim each year. Variable costs are about $13 per swimmer. The Philadelphia Swim Club has a favorable reputation in the area and therefore, has some control over the membership price. Using a cost-plus approach, what price should Philadelphia Swim Club charge for a membership?

Question

Quizplus · Accepted Answer

To calculate the price Philadelphia Swim Club should charge for a membership using a cost-plus approach, first, calculate the total desired return: 10% of $37,000,000 in assets equals $3,700,000. Add this to the fixed costs of $12,600,000 to get $16,300,000. Then, calculate the total variable costs: 540,000 members times $13 per swimmer equals $7,020,000. Add the total variable costs to the total fixed costs and desired return to get the total cost: $16,300,000 + $7,020,000 = $23,320,000. Finally, divide this by the number of members (540,000) to find the price per membership: $23,320,000 / 540,000 = $43.19.

Philadelphia Swim Club Is Planning for the Coming Year