Philladelphia swim club is planning for the comming year. investors would like t
ID: 2550465 • Letter: P
Question
Philladelphia swim club is planning for the comming year. investors would like to earn 10% return on the companys 37,000,000 of assets. the company primarily incurs fixed costs to maintain the swimming pool. fixed costs are projected to be 12,600,000 for the year. about 540,000 members are expected to swim each year. variable costs are about $13 per swimmer. The philadelphia swim club has a favorable reputation in the area and therefore has some control over the membership price. Using a cost - plus approach what price should philidephia swim club charge for a membership?
a. 29.48
b.36.33
c.43.19
d.6.85
Explanation / Answer
Under cost plus pricing, Price is determined by adding Variable cost per unit with Fixed cost per unit and then adding profit required per unit to arrive at price per unit
Variable cost per unit is $13
Fixed cost per unit = Total fixed cost / Quantity
= $12,600,000 / 540,000
= $23.33 per unit
Profit per unit = Investment x Required return percentage / Quantity
= $37,000,000 x 10% / 540,000
= $6.85 per unit
So, Total price per unit
= $13 + $23.33 + $6.85
= $43.19 per unit
So, as per above calculations, option c is the correct option