I think Ive solved s252 need help with s253 s252 Making pric

I think I\'ve solved s25-2, need help with s25-3

s25-2 Making pricing decisions Learnin Mountain 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 12% return on investment on the company\'s $111,000,000 of assets. The company primarily in- curs fixed costs to groom the runs and operate the l costs to be $37,000,000 for the ski season. The resort serves abour 680,000 skiers and snowboarders each season. Variable costs are about $8 per guest. Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices. groom the runs and operate the lifts. Mountain Run projects fixed Requirements 1. Would Mountain Run emphasize target pricing or cost-plus pricing? Why? 2. If other resorts in the area charge $80 per day, what price should Mountain Run charge? Note: Short Exercise S25-2 must be completed before attempting Short Exercise $25-3. S25-3 Making pricing decisions Learning Refer to details about Mountain Run from Short Exercise S25-2. Assume that Mountain Run\'s reputation has diminished and other resorts in the vicinity are charg- ing only $80 per lift ticket. Mountain Run has become a price-taker and will not be able to charge more than its competitors. At the market price, Mountain Run manag- ers believe they will still serve 680,000 skiers and snowboarders each season. Requirements 1. If Mountain Run cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? 2. Assume Mountain Run has found ways to cut its fixed costs to $36,320,000. What is its new target variable cost per skier/snowboarder?

Solution

25-3 in 25-2 he is getting profit 12% on assets which had this calculation -

that time the condition was in his favour so can charge more than market rates.

but now when his market reputation was not good due to excessive charges by him so he could cut down his profit and do costing on cost + pricing, which is as follows -

Profit % he should earn = 11961200/111000000 = 10.78%

no investors would not be happy due to less return (10.78%) than required(12%).

2. now if he wants to earn 12% on assets and reduce his fixed and variable cost then its target variable cost will be as follows -

Please comment in case of any clarification.

No. of skiers and snowbars guest per season	680000
	Amt. in $	Per unit $
variable cost	5440000	8.00
fixed cost	37000000	54.41
Total cost	42440000	62.41
profit @ 12% on 111000000	13320000	19.59
Total realisation	55760000	82.00