Question

Winter Run 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 15% return on investment on the company's $165,000,000 of assets. The company primarily incurs fixed costs to groom the runs and operate the lifts Winter Run projects fixed costs to be $36,000,000 for the ski season. The resort serves about 750,000 skiers and snowboarders each season Variable costs are about $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 Read the requirements Requirement 1. Would Winter Run emphasize target pricing or cost plus pricing? Why? Winter Run should emphasize a cost-plus approach to pricing because it has been able to differentiate its ski resort from others in the area. Because of its good reputation, managers will have some control over pricing Of course they still need to consider whether the cost plus price is within the rango Eustomers are Willing to pay Requirement 2. If other resorts in the area charge $85 per day, what price should Winter Run charge? Complete the following table to calculate the price Winter Run should charge per lift ticket Fixed costs 36000000 Plus Total variable costs Total costs Plus Desired profit Target revenue Divided by Number of skers / snowboarders Price per lift ticket

Answer 1

2.

Fixed costs	36,000,000
Plus: Total Variable costs	6,750,000
Total Costs	42,750,000
Plus Desired profit	24,750,000
Target revenue	67,500,000
Divided by: Number of shares/Snowboarders	750,000
Price per lift ticket	90

Number of skiers and snowboarders = 750,000

Variable cost per guest = $9

Total variable cost = Number of skiers and snowboarders x Variable cost per guest

= 750,000 x 9

= $6,750,000

Invested assets = $165,000,000

Return investment = 15%

Desired profit = Invested assets x Return investment

= 165,000,000 x 15%

= $24,750,000

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