Question

Philadelphia Swim Club is planning for the coming year. Investors would like to earn a​ 10% return on the​ company's $37,000,000 of assets. The company primarily incurs fixed costs to maintain the swimming pool. Fixed costs are projected to be​ $12,600,000 for the year. About​ 540,000 members are expected to swim each year. Variable costs are about​ $13 per swimmer. The Philadelphia Swim Club has a favorable reputation in the area and​ therefore, has some control over the membership price. Using a costminusplus ​approach, what price should Philadelphia Swim Club charge for a​ membership?

Answer 1

Answer:$43.19

Explanation:Total variable cost (540*13)=$7,020,000

Total fixed cost $12,600,000

Expected return ( 10% of $37000000)=$3,700,000

Price to be charged

Price- variable cost - fixed cost= expected return

P= Expected return + fixed cost + variable cost

$3,700,000+$12,600,000+7,020,000

= $23,320,000/540,000

=$43.19