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31 October, 11:50

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 20 % return on the company's $ 110 million of assets. The company incurs primarily fixed costs to groom the runs and operate the lifts. WinterParadises projects fixed costs to be $ 38 comma 200 comma 000 for the ski season. The resort serves 875 comma 000 skiers and snowboarders each season. Variable costs are $ 9 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 WinterParadises emphasize target costing or cost-plus pricing. Why?

2. If other resorts in the area charge $ 58 per day, what price should WinterParadises charge?

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  1. 31 October, 15:28
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    1. WinterParadises should emphasize in cost-plus pricing over target costing. The foregoing is based primarily on the desire of investors to obtain a 20% return on investment in WinterParadises, so a markup that ensures that return would be ideal to achieve this goal. In addition, the favorable reputation enjoyed by the company between skiers and snowboarders means that the effect on the demand for the services offered will not be representative.

    2. a) Total Cost = ($9 x 875000 + $38200000) = $46075000

    b) Investors expected earnings = $110000000 x 20% = $22000000

    So, in order to meet the investors desires, The resort would have to receive $46075000 + $22000000 = $68075000.

    c) $68075000 / 875000 = $77.8 per day
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