Hilltop Golf Course is planning for the coming golfing season. Investors would l
ID: 2473316 • Letter: H
Question
Hilltop Golf Course is planning for the coming golfing season. Investors would like to earn a 15% return on thecompany’s $50,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $30,000,000 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. $77
B. $92
C. $60
D. $43
Explanation / Answer
A
Fixed Cost
30,000,000
B
Add:
Variable cost(500,000 rounds x 17 per unit)
8,500,000
C=A+B
Total cost
38,500,000
D
Add:
Return on investment(Desired Profit) ie $50,000,000 x 15 %
7,500,000
E=C+D
Desired Sales
46,000,000
F
No of rounds
500,000
G=E/F
Target Selling Price
92
A
Fixed Cost
30,000,000
B
Add:
Variable cost(500,000 rounds x 17 per unit)
8,500,000
C=A+B
Total cost
38,500,000
D
Add:
Return on investment(Desired Profit) ie $50,000,000 x 15 %
7,500,000
E=C+D
Desired Sales
46,000,000
F
No of rounds
500,000
G=E/F
Target Selling Price
92
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