Question

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

costminus−plus
Approach, what price should Mountaintop charge for a round of​golf?
A.$51.50
B.$78.50
C. ​$ 0.21
D. $71.00

Answer 1

The correct option is B

Step-by-step explanation:

The return on assets would be:

Return on assets (ROA)= Assets × Return

= $45,000,000 × 12%

= $5,400,000

Return per customer = ROA / Number of golfers

= $5,400,000 / 400,000

= $13.50

Fixed Cost per Customer = Fixed Cost / Number of golfers

= $20,000,000 / 400,000

= $50

Cost to be charged per customer = Profit + Fixed Cost + Variable Cost

= $13.50 + $50 + $15

= $78.50