Green Pastures golf course is planning for the coming season.Investors would like to earn a 10% return on the company's $40 million of assets.The company primarily incurs fixed costs to groom the greens and fairways.Fixed costs are projected to be $15,000,000 for the golfing season.About 400,000 golfers are expected each year.Variable costs are about $20 per golfer.
-The Green Pastures 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 Green Pastures 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 desired return on assets and the variable cost per golfer to the fixed costs and divide the total by the expected number of golfers.

The desired return on assets is 10% of $40 million, which is $4 million.

The variable cost per golfer is $20.

So, the total cost per golfer is $15 million + $4 million + ($20 x 1) = $19 million.

Dividing this by the expected number of golfers, we get the cost-plus price per round of golf:

Price per round = $19 million / 400,000 = $47.50

Therefore, the best choice is C.

Green Pastures Golf Course Is Planning for the Coming Season