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 11% return on investment on the company's $156,000,000 of assets. The company primarily incurs fixed costs to groom the runs and operate the lifts. Winter Run projects fixed costs to be $33,000,000 for the ski season. The resort serves about 660,000 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. Read the requirements1. Requirement 1. Would Winter Run emphasize target pricing or cost-plus pricing? Why? Winter Run should emphasize a cost-plus 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 some control over pricing. Of course, they still need to consider whether the cost-plus price is within the range customers are willing to pay. Requirement 2. If other resorts in the area charge $83 per day, what price should Winter Run charge? Complete the following table to calculate the price Winter Run should charge per lift ticket. (1) Fixed costs Plus: (2) Total variable costs (3) Total costs Plus: (4) Desired profit (5) Target revenue Divided by: (6) Price per lift ticket Given Winter Run's favorable reputation, they (7) 1: Requirements 1. Would Winter Run emphasize target pricing or cost-plus pricing? Why? 2. If other resorts in the area charge $83 per day, what price should Winter Run charge?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

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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

11%

return on investment on the company's

$156,000,000

of assets. The company primarily incurs fixed costs to groom the runs and operate the lifts.

Winter Run

projects fixed costs to be

$33,000,000

for the ski season. The resort serves about

660,000

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.

Read the

requirements1.

Requirement 1. Would

Winter Run

emphasize target pricing or cost-plus pricing? Why?

Winter Run

should emphasize a

cost-plus

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

some

control over pricing. Of course, they still need to consider whether the

cost-plus

price is within the range customers are willing to pay.

Requirement 2. If other resorts in the area charge

$83

per day, what price should

Winter Run

charge?

Complete the following table to calculate the price

Winter Run

should charge per lift ticket.

(1) Fixed costs
Plus:	(2) Total variable costs
(3) Total costs
Plus:	(4) Desired profit
(5) Target revenue
Divided by:	(6)
Price per lift ticket

Given

Winter Run's

favorable reputation, they

(7)

1: Requirements

1.	Would Winter Run emphasize target pricing or cost-plus pricing? Why?
2.	If other resorts in the area charge $83 per day, what price should Winter Run charge?

(1)

Desired profit

Fixed costs

Number of skiers / snowboarders

Target revenue

Total costs

Total variable costs

(2)

Desired profit

Fixed costs

Number of skiers / snowboarders

Target revenue

Total costs

Total variable costs

(3)

Desired profit

Fixed costs

Number of skiers / snowboarders

Target revenue

Total costs

Total variable costs

(4)

Desired profit

Fixed costs

Number of skiers / snowboarders

Target revenue

Total costs

Total variable costs

(5)

Desired profit

Fixed costs

Number of skiers / snowboarders

Target revenue

Total costs

Total variable costs

(6)

Desired profit

Fixed costs

Number of skiers / snowboarders

Target revenue

Total costs

Total variable costs

(7)

should be able to charge the price above without affecting their volume.

won't be able to charge the price above without affecting their volume.

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