SnowDreams 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% return on the company’s $100 million of assets. The company incurs primarily fixed costs to groom the runs and operate the lifts. SnowDreams projects fixed costs to be $33,750,000 for the ski season. The resort serves about 750,000 skiers and snowboarders each season. Variable costs are about $10 per guest. Currently, the resort has such a favourable reputation among skiers and snowboarders that it has some control over the lift-ticket prices.
1. Would SnowDreams emphasize target costing or cost-plus pricing? Why?
2. If other resorts in the area charge $70 per day, what price should SnowDreams charge?