Zachary Camps, Inc. leases the land on which it builds camp sites. Zachary is considering opening a new site on land that requires $3,400 of rental payment per month. The variable cost of providing service is expected to be $6 per camper. The following chart shows the number of campers Zachary expects for the first year of operation of the new site:

Zachary Camps, Inc. leases the land on which it builds camp sites. Zachary is considering opening a new site on land that requires $3,400 of rental payment per month. The variable cost of providing service is expected to be $6 per camper. The following chart shows the number of campers Zachary expects for the first year of operation of the new site:
 

Required

Assuming that Zachary wants to earn $10 per camper, determine the price it should charge for a camp site in February and August. (Do not round intermediate calculations.)

 

 Explanation

The price charged should be the same for each month regardless of how many customers are served. Accordingly, the fixed cost must be averaged over the annual total number of campers. Using a cost plus pricing strategy, the price would be set as follows: Price = Average fixed cost per camper + variable cost per camper + desired profit. The appropriate computations are shown below:

Computation of fixed cost per unit:
 

Fixed rent cost per camper =	$3,400 × 12	= $6
	6,800

Price = Fixed cost (rent) per camper + Variable cost per camper + $10
Price = $6 + $6 + $10
Price = $22