Rolling Hills Golf Course is planning for the coming golfing season.Investors would like to earn a 10% return on the company's $60,000,000 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 $17 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 cost-plus pricing approach,what sales price should Rolling Hills charge for a round of golf to achieve the desired profit?

Question

Quizplus · Accepted Answer

To achieve a 10% return on $60,000,000, the desired profit is $6,000,000. Total costs are $30,000,000 (fixed) + $8,500,000 (variable: $17 * 500,000 rounds) = $38,500,000. Total revenue needed is $38,500,000 + $6,000,000 = $44,500,000. Dividing by 500,000 rounds gives a price of $89 per round.

Rolling Hills Golf Course Is Planning for the Coming Golfing