Question 11
Rolling Hills Golf Course is planning for the coming golfing season. Investors would like to earn a 10% return on the company's $60,000,000 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. Rolling Hills has a favorable reputation in the area and, therefore, has some control over the sales price of a round of golf. Using a costplus pricing approach, what sales price should Rolling Hills charge for a round of golf to achieve the desired profit?
A. 
$60 

B. 
$77 

C. 
$89 

D. 
$43 
Return on assets is expected to be 10% and company's total assets are of $60,000,000
Total expected profit = Total assets * Desired return on assets = $60,000,000 * 10% = $6,000,000
Total expected rounds of golf : 500,000
Total expected fixed costs  $30,000,000 
(+) Total expected variable costs [ Total expected rounds of golf * Variable cost per round of golf = 500,000 rounds * $17 ] 
$8,500,000 
Total expected costs  $38,500,000 
(+) Total expected profit  $6,000,000 
Total expected sales value  $44,500,000 
( / ) Total expected rounds of golf  500,000 
sales price for a round of golf  $89 
Option C [ $89 ] is the correct answer.
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