Matt Simpson owns and operates Quality Craft Rentals, which offers canoe rentals
ID: 340802 • Letter: M
Question
Matt Simpson owns and operates Quality Craft Rentals, which offers canoe rentals and shuttle service on the Nantahala River. Customers can rent canoes at one station, enter the river there, and exit at one of two designated locations to catch a shuttle that returns them to their vehicles at the station they entered Following are the costs involved in providing this service each year: Fixed Costs Variable Costs $ 3.00 Canoe maintenance Licenses and permits Vehicle leases Station lease Advertising Operating costs 2,350 3,050 5,450 6,970 6,050 21,050 1.00 1.00 Quality Craft Rentals began business three years ago with a $21,500 expenditure for a fleet of 30 canoes These are expected to last seven more years, at which time a new fleet must be purchased Required Matt is happy with the steady rental average of 6,500 per year. For this number of rentals, what price should he charge per rental for the business to achieve a mark-up rate of 19% based on life-cycle costs? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price per rentalExplanation / Answer
Total Fixed Costs = $2,350 + 3,050 + 5,450 + 6,970 + 6,050 + 21,050 = $44,920
Total Variable Costs = $3.00 + 1 + 1 = $5.00
Life-Cycle Costs =
$21,500 for fleet of canoes
449,200 (annual fixed costs × 10 years)
325,000($5.0 var. costs × 6,500 rentals per yr × 10 years)
$795,700
Life-Cycle Revenues needed for 19% profit margin = $795,700 / 0.81 = $982,345.68
Price per Rental for 19% profit margin = $982,345.68 / 65,000 rentals in ten years = $15.11