Question

Mount Snow operates a mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. Investors would like to earn a 16% return on the company’s $109 375 000 of assets. The company primarily incurs fixed costs to groom the runs and operate the lifts. Mount Snow projects fixed costs to be $35 000 000 for the ski season. The resort serves about 700 000 skiers and snowboarders each season. Variable costs are about $12 per guest. Currently, the resort has such a favourable reputation among skiers and snowboarders that it has some control over the lift ticket prices.

Required

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

Answer 1

a. Mount Snow would emphasise cost plus pricing.It would be considered a price setter because the resort has a favourable reputation and therefore some control over lift ticket prices.

b. Variable Cost(700000 guest * $12 per guest) = $84,00,000

Fixed Cost (Given in question) = $3,50,00,000

Total Cost = $4,34,00,000

(Plus) Desired Profit ($109 375 000 *16%) = $1,75,00,000

Target Revenue = $ 6,09,00,000

No. of guests = 7,00,000

Cost plus price per guest = $87 per guest