Question

Skiable Acres 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 10% return on investment on the​ company's $260,900,000 of assets. Skiable Acres projects fixed costs to be $30,000,000 for the ski season. The resort serves about 710,000 skiers and snowboarders each season. Variable costs are about $8 per guest. Last​ year, due to its favorable​ reputation, Skiable Acres was a​ price-setter and was able to charge $4 more per lift ticket than its competitors without a reduction in the number of customers it received.

Assume that Skiable Acres's reputation has diminished and other resorts in the vicinity are charging only $83 per lift ticket. Skiable Acres has become a​ price-taker and will not be able to charge more than its competitors. At the market​ price,Skiable Acres managers believe they will still serve 710,000 skiers and snowboarders each season.

Read the Requirements

1.	If Skiable Acres cannot reduce its​ costs, what profit will it​ earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit​ level?
2.	Assume Skiable Acres has found ways to cut its fixed costs to $28,500,000. What is its new target variable cost per​ skier/snowboarder?

Requirement 1

If Skiable Acres cannot reduce its​ costs, what profit will it​ earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit​ level?

Complete the following table to calculate Skiable Acres's projected income.

Revenue at market price___________

Less: Total Costs____________

Operating income___________

2.

Assume Skiable Acres has found ways to cut its fixed costs to $28,500,000. What is its new target variable cost per​ kier/snowboarder?

Revenue at market Price___________

Less: Desired profit___________

Target full cost___________

Less: Reduced level of fixed costs____________

Target total variable costs___________

Divided by number of skiers/snowboarders___________

Target variable cost per skier/snowboarder______________

Answer 1