Question

Matt Simpson owns and operates Quality Craft Rentals, which offers canoe rentals and shuttle service on the Nantahala River Customers can rent canoes at one station, enter the river there, and exit at one of two designated locations to catch a shuttle that returns them to their vehicles at the station they entered. Following are the costs involved in providing this service each year Fixed Costs 2,900 3,600 6,000 7,520 6,600 21,600 Variable Costs Canoe maintenance Licenses and permits $ 8.50 Vehicle leases Station lease Advertising Operating costs 6.50 6.50 Quality Craft Rentals began business with a $29,000 expenditure for a fleet of 30 canoes. These are expected to last 10 more years, a which time a new fleet must be purchased. Rentals have been stable at about 7,200 per year. Required: Matt is happy with the steady rental average of 7.200 per year. For this number of rentals, what price should he charge per rental for the business to make an annual 14% before-tax return on assets using life-cycle costs? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price per rental 2 decimal places required

Answer 1

Statement of Price to be charged for 1 year
Particulars		($)
Costs
Fixed Cost
Canoe Maintenance	2,900
Licenses and Permits	3,600
Vehicle Leases	6,000
Station Lease	7,520
Advertising	6,600
Operating Costs	21,600
Depreciation	2,900
		51,120
Variable Cost for 7200 rentals
Canoe Maintenance	61,200
Advertising	46,800
Operating Costs	46,800
		154,800
Total Costs		205,920
Add: Return @ 14% on assets		4,060
Total Expected Revenue		209,980
Average rentals per annum		7,200
Price per rental ($/ rental)		29.16