Question

Hitz Video Rental is evaluating rental prices. Historical data show that Friday and Saturday have twice the rentals of other days of the week. The following information pertains to the​ store's normal operations per​ week:

Average rentals per day on Friday and Saturday ​1,350

Average rentals per day on Sunday through Thursday 600

Store hours per day 12

Total units available for rent ​10,000

Variable operating costs per hour ​$43

Marketing costs per week ​$1,900

Customer service costs per week ​$250

The store manager wants to charge more for rentals on Friday and Saturday. What is the minimum price that should be charged during peak rental​ days?

Is it:

A. $0.64

B. $0.68

C. $1.01 [right answer, per practice test]

D. $0.61

Please show how you solved the problem. Thank you!

Answer 1

Answer :-

The correct answer is option C - $1.01

Explanation :-

We will first find the variable operating cost per week.

Given, Variable operating costs per hour ​- $43

Store hours per day - 12 hours

Variable operating costs per hour = $43 × 12 hours per day × 7 days

Variable operating costs per week = $3,612

Marketing costs per week = ​$1,900

Customer service costs per week = ​$250

Total cost per week = Variable operating costs per week + Marketing costs per week + Customer service costs per week

Total costs per week = $3,612 + $1,900 + $250

Total costs per week = $5,762

Given,

Average rentals per day on Friday and Saturday ​ = $1,350

Average rentals per day on Sunday through Thursday = $600

Rental per week = ($1,350 × 2 days) + ($600 × 5 days from Sunday to Thursday)

Rental per week = $2,700 + $3,000

Rental per week = $5,700

Average rental costs per week = Total costs per week / Rental per week

Average rental costs per week = $5,762 /$5,700

Average rental costs per week = $1.01

The minimum price that should be charged during peak rental​ days is $1.01