Question

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 cost-plus 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

Answer 1

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.