Question

SnowDreams operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. Investors would like to eam a 20% return on the company's $110 million af assets. The company incurs primarily fixed costs to groom the runs and operate the lifts. SnowDreams projects fixed costs to be $38,200,000 for the ski season. The resort serves 875,000 skiers and snowboarders each season. Variable costs are S9 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. 2. Would SnowDreams emphasize target costing or cost-plus pricing. Why? If other resorts in the area charge S58 per day, what price should SnowDreams charge? 1. Would SnowDreams emphasize target costing or cost-plus pricing. Why? SnowDreams 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 favorable reputation, managers will have some control over pricing. Of course, they still need to consider whether the cost-plus price is within the range customers are willing to pay 2. If other resorts in the area charge $58 per day, what price should SnowDreams charge? Complete the following table to calculate the price Snow,Dreams should charge. (Round your answer to the nearest cent.) Fixed costs Plus: Plus Target revenue Divided by: Price per lift ticket Choose from any list or enter any number in the input fields and then click Check Answer

Answer 1

Emphasize a cost-plus approach, some control, cost plus price

2.Charge:

Desired Income = 20%*110 = 22,000,000

Add: Fixed Costs = $38,200,000

Contribution Margin = $60,200,000

Add: Variable cost 875,000*9 = $7,875,000

Target Revenue = $68,075,000

Divided by: Number of skiers 875,000

Price per ticket = $77.8