Skable Acres operates a Rocky Mountain ski resort. The company is planning its l

Question

Skable Acres operates a Rocky Mountain ski resort. The company is planning its lif ticket pricing or the coming ski season nvestors would like o earn a 11% return on investment on the company s $156,000 0 0 0 assets. The company primarily incurs fixed costs to groom the runs and operate the lifts. Skiable Acres projects fixed costs to be S33,000,000 for the ski season. The resort serves about 660,000 skiers and snowboarders each season. Variable costs are about $9 per guest. Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices. Read the requirements. Requirement 1. Would Skiable Acres emphasize target pricing or cost-plus pricing? Why? Skiable Acres should emphasize a need to consider whether the approach to pricing boca se it has been able to differentiate price is within the range customers are willing to pay. s ski resort om others in the a a ecause of its good reputation, manager Swil have contro overpricing f ourse, the sti Requirement 2. If other resorts in the area charge $81 per day, what price should Skiable Acres charge? Complete the fol owing table to calculate the price Skiable Acres should charge per lift ticket. Plus Plus Divided by: Price per lift ticket Given Skiable Acres's favorable reputation, they should be able to charge the price above without affecting their volume. wont be able to charge the price above without affecting their volume.

Explanation / Answer

1) Skiable Acre should emphasize a target pricing approach to pricing because it has been able to differentiate its ski resort from others in the area. Because of its good reputation, managers will have a good control over pricing. Of course, they still need to consider whether the target price is within the range customers are willing to pay.

2) Calculation of price Skiable will charge (Amount in $)

Given Skiable Acre's favourable reputation, they should be able to charge the price above without affecting their volume.

Fixed cost to operate the lifts 33,000,000 Plus: Variable cost ($9*660,000) 5,940,000 Total cost to operate the lifts (A) 38,940,000 Plus: Required return on Assets (156,000,000*11%) (B) 17,160,000 Total Revenue required from tickets (C = A+B) 56,100,000 Divided by: No. of customers (D) 660,000 Price per lift ticket (C/D) 85

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