Question

The exclusive Swink Golf Driving Range has had a standard price of ​$18.00 per hour. The facility has 41 golfing​ stations, with average usage of 50​%, 9 hours a​ day, 7 days a week. Morgan​ Swink, the​ owner, would like to enhance revenue. He proposes new pricing at ​$14 per hour on weekdays and ​$25 per hour on weekends. He estimates that weekday usage will increase to 60​% and weekend usage will remain at 50​%, even with the price increase. Variable cost is a consistent ​$3 per hour. Which strategy is​ better? Total revenue under the current pricing is ​$ nothing ​(round your response to the nearest​ dollar)

Answer 1

Let us estimate current revenue first in a weekly language

There are 41 stations with 50% utilization at 9 hrs a day 7 days a week

i.e. 41X9X7X50% = 1291.5 hrs

At 18$ per hour price and 3$ per hour variable cost, profit/hour is $15

So total profit for the week = 1291.5X15 = $19,373

Now let us look at the changed scenario with $14 per hour on weekdays and $25 per hour on weekends with weekday usage at 60% and weekend at 50%

Total hours on weekends = 41X9X2X50% = 369

With profit/hr on weekend being 25-3 = 22; total profit on weekend = 369X22 = $8,118

Total hours on weekdays = 41X9X5X60% = 1107

With profit/hr on weekdays being 14-3 = 11; total profit on weekdays = 1107X11 = $12,177

Therefore, total profit in the revised strategy = 8118 + 12177 = $20,295

The total profit is more than the initial scenario hence the new strategy is definitely better