Question

Skaties operates a Rocky Moun Click the con lo vw the information) t The company is planning is coping for the e your indo Requirement 1. If Skate Acres cannot reduce its coss, what profil Complete the following table locale Sale Acress proced income We investors b oy with the profilever Roncea maket price 0 More info Loss Total costs Operating income (Round the percentage to the nearest hundredth percent, XXX%) Skiable Aces's projected operating income as a percent of assets amounts 10 investors woud ora 10 v nt on the companys $270,000,000 of assets Acres precised costs to be 1000,000 for the skisson The reserves about 70.000 and snowboarders each season Vrtecore about 12 pers Last year de la bouton Skate Acres was a price for and was to charge $5 more per la competitors who a ction in the number of customers received Assume that Acress reputation as shed and one o n the only are charging only $per Skibe Acres has become a proce s wil not be the charge more than competitors A m p S Acres managers believe they w ill serve 25,000 rsand borders each season Wavestors te hare with this profilevel? a Requirement 2. Assume Skibe Acres has found ways to cut is found costs to $30.000.000 What is w Complete the following table to calculate Sobe Acres's age wwe cos por customer found you Done Rovence market price Less Deved profit Enter any number in the edt felds and then continue to the next question

Answer 1

Target costing is a type of pricing strategy and cost management tool that uses price to determine cost. It begins with determining a viable and competitive selling price in the market and the desired profit per unit, and finally calculating the target cost for the product or service.

Requirement 1:

Calculation of Skiable Acres' projected income

$ 63,075,000 Revenue at Market price (725,000 skiers and snowboarders * $ 87) Less: Total Costs ($31,000,000 + (725,000 * $12) Operating Income $ $ 39,700,000 23,375,000

Therefore, The Operating Income or Profit is $23,375,000.

Skiable Acres' projected operating income (profit) as a percent of assets

Profit as % of assets (in %) = Profits * 100 x 100 Assets $23,375,000 $270,000,000 = 8.66%

Investors will not be happy with this profit level of 8.66% because the investors want to earn a 10% return on investment on Skiable Acres' assets.

Requirement 2:

Calculation of Skiable Acres' new target variable cost per skier/snowboarder

$ $ Revenue at market price (725000x 87) Less: Desired profit (270,000,000 * 10%) Target full product cost Less: Reduced Level of fixed costs Target total Variable costs Divided by number of skiers and snowboarders New Target variable cost per skier/snowboarder 63,075,000 27,000,000 36,075,000 30,000,000 6,075,000 725,000 8.38 per guest

If Skiable Acres can cut its fixed costs to $30,000,000, its new target variable cost would be $8.38 per guest.