Question

Solomon Camps, Inc. leases the land on which it builds camp sites. Solomon is considering opening a new site on land that requires $5,400 of rental payment per month. The variable cost of providing service is expected to be $8 per camper. The following chart shows the number of campers Solomon expects for the first year of operation of the new site:

Jan.	Feb.	Mar.	Apr.	May	June	July	Aug.	Sept.	Oct.	Nov.	Dec.	Total
450	410	520	540	820	680	870	830	570	550	470	490	7,200

Required

Assuming that Solomon wants to earn $8 per camper, determine the price it should charge for a camp site in February and August.

Answer 1

Solution : Calculation of Selling price per camper if Solomon wants to earn $ 8 per camper in February :-

Target Profit per Camper = $ 8 per Camper

Expected Sales in February = 410 Campers

Target Profit = 410 Campers * $ 8 per Camper = $ 3280

Fixed Expenses (Rent ) = $ 5400

Therefore , Required Contribution Margin = Target Profit + Fixed expenses

= $ 3280 + 5400 = $ 8680

Variable Costs per Camper = $ 8

Total variable Costs = 410 Campers * $ 8 per Camper = $ 3280

Therefore , Required Sales = Total Variable Costs + Required Contribution Margin

= $ 3280 + $ 8680 = $ 11960

Required Selling price per unit = Required Sales / Expected No. of Sales

= $ 11960 / 410 Campers = $ 29.17 per Camper

Thus, Solomon should charge $ 29.17 per camper in order to earn $ 8 per camper in February.

Calculation of Selling price per camper if Solomon wants to earn $ 8 per camper in August :-

Target Profit per Camper = $ 8 per Camper

Expected Sales in August = 830 Campers

Target Profit = 830 Campers * $ 8 per Camper = $ 6640

Fixed Expenses (Rent ) = $ 5400

Therefore , Required Contribution Margin = Target Profit + Fixed expenses

= $ 6640 + 5400 = $ 12040

Variable Costs per Camper = $ 8

Total variable Costs = 830 Campers * $ 8 per Camper = $ 6640

Therefore , Required Sales = Total Variable Costs + Required Contribution Margin

= $ 6640 + $ 12040 = $ 18680

Required Selling price per unit = Required Sales / Expected No. of Sales

= $ 18680 / 830 Campers = $ 22.51 per Camper

Thus, Solomon should charge $ 22.51 per camper in order to earn $ 8 per camper in August.