14-22 Cost-plus target return on investment pricing. John Branch is the managing partner of a business that has just fin

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14 22 Cost Plus Target Return On Investment Pricing John Branch Is The Managing Partner Of A Business That Has Just Fin 1 (78.8 KiB) Viewed 18 times

14-22 Cost-plus target return on investment pricing. John Branch is the managing partner of a business that has just finished building a 60-room motel. Branch anticipates that he will rent these rooms for 16,000 nights next year (or 16,000 room-nights). All rooms are similar and will rent for the same price. Branch esti- mates the following operating costs for next year: ong or pnimueza alaya Variable operating costs $4 per room-night Fixed costs neansprut Ignora ele i drWaals Salaries and wages $170,000 Maintenance of building and pool 48,000 et artibin 8 122,000 Other operating and administration costs Total fixed costs $340,000 The capital invested in the motel is $1,000,000. The partnership's target return on investment is 20%. Branch expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. shox] ve12 nut (anul 1. What price should Branch charge for a room-night? What is the markup as a percentage of the full cost of a room-night? gx3y812 2. Branch's market research indicates that if the price of a room-night determined in requirement 1 is re- duced by 10%, the expected number of room-nights Branch could rent would increase by 10%. Should Branch reduce prices by 10% ? Show your calculations.