Calculating Cost-Plus Price for the Rosebud Motel

What should Rosebud's cost-plus price be if sales volume and costs are expected to stay consistent?

Options: $133.33 The Rosebud Motel would not set its price as it is a price-taker in this market. $2,150.00 $185.42 $152.08

Answer:

The cost-plus price for the Rosebud Motel should be $890,000 if sales volume and costs are expected to stay consistent.

In order to calculate the cost-plus price for the Rosebud Motel, we need to consider the fixed costs, variable costs, and the desired return on assets. The fixed costs are $160,000, and with 24 rooms filled for 200 nights each, we have a total of 4,800 room nights. The variable cost per night is $100. The desired return on assets is 50% of $500,000, which is $250,000.

To calculate the cost-plus price, we need to add the fixed costs, the variable costs per room night, and the desired return on assets. Cost-plus price = Fixed costs + (Variable costs per room night * Number of room nights) + Desired return on assets

Plugging in the values, we get: Cost-plus price = $160,000 + ($100 * 4,800) + $250,000

Simplifying the equation: Cost-plus price = $160,000 + $480,000 + $250,000 = $890,000

Therefore, the cost-plus price for the Rosebud Motel should be $890,000 if sales volume and costs are expected to stay consistent.