Hilltop Golf Course is planning for the coming golfing season
Investors would like to earn a 10% return on the company's $50,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $32,000,000 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. Hilltop 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 Hilltop charge for a round of golf to achieve the desired profit?
A) $64
B) $81
C) $47
D) $91
D .D)
Current variable cost (500,000 x $17 ) $8,500,000
Plus: Fixed cost 32,000,000
Full product cost $40,500,000
Plus: Desired profit ($50,000,000 x 10%) 5,000,000
Target revenue $45,500,000
Divided by rounds of golf / 500,000
Sales price per round of golf $91
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