Question

Baird Camps, Inc. leases the land on which it builds camp sites. Baird is considering opening a new site on land that requires $4,000 of rental payment per month. The variable cost of providing service is expected to be $6 per camper. The following chart shows the number of campers Baird expects for the first year of operation of the new site: Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total 530 450 560 580 940 720 910 870 610 590 710 530 8,000 Required Assuming that Baird wants to earn $7 per camper, determine the price it should charge for a camp site in February and August. (Do not round intermediate calculations.)

Answer 1

Calculation of price for the month of February :-   

Fixed rentals per month = $4,000

Expected no. of campers to be sold in Feb = 450

Variable cost per camper = $6 per camper

Total net income required to be earned = No. of campers*$7 per camper

   = 450 campers*$7 = $3,150

Total contribution = Fixed Rental+Net Income

= $4,000+$3,150 = $7,150

Contribution per camper = Total contribution/No. of campers

= $7,150/450 campers = $15.89 per camper

Sale price to be charged per camper = Contribution per camper+Variable cost per camper

= $15.89+$6.00 = $21.89

Calculation of price for the month of August :-   

Fixed rentals per month = $4,000

Expected no. of campers to be sold in August = 870

Variable cost per camper = $6 per camper

Total net income required to be earned = No. of campers*$7 per camper

   = 870 campers*$7 = $6,090

Total contribution = Fixed Rental+Net Income

= $4,000+$6,090 = $10,090

Contribution per camper = Total contribution/No. of campers

= $10,090/870 campers = $11.60 per camper

Sale price to be charged per camper = Contribution per camper+Variable cost per camper

= $11.60+$6.00 = $17.60 per camper