Rosemont tennis is planning for the coming year. investors would like to earn a 13% return on the company’s $23245058 million of assets. the company primarily incurs fixed costs to maintain the tennis courts. fixed costs are projected to be $10755370 for the year. about 500,000 court time hours are expected to be played each year. variable costs are about $5 per hour of court time. the rosemont country club and tennis courts has a favorable reputation in the area and therefore, has some control over the price per hour of court time. using a cost-plus approach, what price should rosemont tennis charge for an hour of court time?

The price charged per hour should be $32,55

Explanation: The cost-plus approach is based on this formula Price (P) = (Overall cost per unit)*(1 + markup) So we need to get Overall cost per unit and markup. The overall costs is the sum of the fixed cost divided by the total amount of court hours ($10.755.370 / 500.000h = $21,51), plus the variable cost per hour ($5). Then, our total cost is $26,51. The markup is the expected return on assets per hour divided by total costs per hour [($23.245.058 * 13% / 500.000) / $26,51] =  0,228. Then, the markup per hour is 22,8%. Using the cost-plus approach we get: P = 26,51 * (1 + 0,228) = $33,55 per court hour

c

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