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Part $1$

Winter SportsWinter$$Sports$,$

Inc. 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

$15\%15\%$

return on the$$ company's

$ $100$$$100$

million of assets. The company incurs primarily fixed costs to groom the runs and operate the lifts.

Winter SportsWinter$$Sports

projects fixed costs to be

$ $33$ comma $750$ comma $000$$$33,750,000$

for the ski season. The resort serves

$750$ comma $000750,000$

skiers and snowboarders each season. Variable costs are

$ $10$$$10$

per guest.$$ Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices.

$1.$

Would

Winter SportsWinter$$Sports

emphasize target costing or$$ cost$-$plus pricing.$$ Why?

$2.$

If other resorts in the area charge

$ $65$$$65$

per$$ day, what price should

Winter SportsWinter$$Sports

$$charge$?$

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Part $1$

$1.$ Would

Winter SportsWinter$$Sports

emphasize target costing or$$ cost$-$plus pricing.$$ Why?

Winter SportsWinter$$Sports

should emphasize a

$$

$$

cost$-$plus

target

approach to pricing because it has been able to differentiate its ski resort from others in the area. Because of its favorable$$ reputation, managers will have

$$

$$

no

some

control over pricing. Of$$ course, they still need to consider whether the

$$

$$

cost$-$plus

target

price is within the range customers are willing to pay.

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