Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $45 million 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 400,000 golfers are expected each year. Variable costs are about $15 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?
A) $51.50
B) $71.00
C) $78.50
D) $ 0.21

C
Explanation: C)
Variable costs per unit $15.00
Expected volume 400,000
Total variable costs $6,000,000

Investors' return (% of assets) 12%
Total assets $45,000,000
Desired profit $5,400,000

Total fixed costs $20,000,000
Total variable costs $6,000,000
Total costs $26,000,000
Desired profit $5,400,000
Target revenue $31,400,000
Divide by Divide by
Expected volume 400,000
Cost-plus price per round of golf $78.50