Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $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 costminusplus approach, what price should Philadelphia Swim Club charge for a membership?

Question

Lance Larson

Business

29 June, 20:18

Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $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 costminusplus approach, what price should Philadelphia Swim Club charge for a membership?

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Answers (1)

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Jaden English · Answer 1

Answer:$43.19

Explanation:Total variable cost (540*13) = $7,020,000

Total fixed cost $12,600,000

Expected return (10% of $37000000) = $3,700,000

Price to be charged

Price - variable cost - fixed cost = expected return

P = Expected return + fixed cost + variable cost

$3,700,000+$12,600,000+7,020,000

= $23,320,000/540,000

=$43.19