Winter Sports Inc. 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 the company's $100 million of assets. The company incurs primarily fixed costs to groom the runs and operate the lifts. Winter Sports projects fixed costs to be $33,750,000 for the ski season. The resort serves 750,000 skiers and snowboarders each season. Variable costs are $10 per guest. Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices. 1. Would Winter Sports emphasize target costing or cost-plus pricing. Why? 2. If other resorts in the area charge $65 per day, what price should Winter Sports charge? 1. Would Winter Sports emphasize target costing or cost-plus pricing. Why? Winter Sports 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 favorable 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. 2. If other resorts in the area charge $65 per day, what price should Winter Sports charge? Complete the following table to calculate the price Winter Sports should charge. (Round your answer to the nearest cent.) Plus: Plus: Target revenue Divided by: Price per lift ticket ▼
Winter Sports Inc. 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 the company's $100 million of assets. The company incurs primarily fixed costs to groom the runs and operate the lifts. Winter Sports projects fixed costs to be $33,750,000 for the ski season. The resort serves 750,000 skiers and snowboarders each season. Variable costs are $10 per guest. Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices. 1. Would Winter Sports emphasize target costing or cost-plus pricing. Why? 2. If other resorts in the area charge $65 per day, what price should Winter Sports charge? 1. Would Winter Sports emphasize target costing or cost-plus pricing. Why? Winter Sports 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 favorable 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. 2. If other resorts in the area charge $65 per day, what price should Winter Sports charge? Complete the following table to calculate the price Winter Sports should charge. (Round your answer to the nearest cent.) Plus: Plus: Target revenue Divided by: Price per lift ticket ▼
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
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Transcribed Image Text:Winter Sports Inc. 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 the company's $100
million of assets. The company incurs primarily fixed costs to groom the runs and operate the lifts. Winter Sports projects fixed costs to be $33,750,000 for the ski season. The resort serves 750,000
skiers and snowboarders each season. Variable costs are $10 per guest. Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift
ticket prices.
1. Would Winter Sports emphasize target costing or cost-plus pricing. Why?
2. If other resorts in the area charge $65 per day, what price should Winter Sports charge?
1. Would Winter Sports emphasize target costing or cost-plus pricing. Why?
Winter Sports 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 favorable 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.
2. If other resorts in the area charge $65 per day, what price should Winter Sports charge?
Complete the following table to calculate the price Winter Sports should charge. (Round your answer to the nearest cent.)
Plus:
C
Plus:
Target revenue
Divided by:
Price per lift ticket
▼
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