Question

Winter Run operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. Investors would like to earn a 15 % return on investment on the​ company's $148,500,000 of assets. The company primarily incurs fixed costs to groom the runs and operate the lifts. Winter Run projects fixed costs to be $35,000, 000 for the ski season. The resort serves about 725,000 skiers and snowboarders each season. Variable costs are about $ 11 per guest.​ Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices.

Required:
a. Would Acres emphasize target pricing or cost-plus pricing? Why?
b. If other resorts in the area charge $1 per day. what should Skiable Acres charge?

Answer 1

(a) cost plus pricing

(b) $90 per ticket

Step-by-step explanation:

According to the scenario, computation of the given data are as follow:-

a). Acres emphasize cost plus pricing since they want a desired rate of return on investment which added to the cost. We only when used the target price when we don’t have much flexibility with the selling price and after that they have to determine target cost after keeping a desired profit.

b). Variable Cost = No. of Skiers and Snowboarders × Variable Cost Per Unit

=725,000 × $11 = $7,975,000

Fixed Cost = $35,000,000

Desired Profit = Assets of The Company × Return On Investment On The Company

= $148,500,000 × 15% = $22,275,000

Target Sales = Fixed Cost + Variable Cost + Desired Profit

= $35,000,000 + $7,975,000 + $22,275,000 = $65,250,000

Per Ticket Price = Target Sales ÷ No. of Skiers

= $65,250,000 ÷ 725000

= $90