Chi
Omega Sorority is planning its annual Riverboat Extravaganza. The
Extravaganza committee has assembled the following expected costs for
the event:
| | |
| Dinner (per person) | $7 |
| Favors and program (per person) | $3 |
| Band | $1,500 |
| Tickets and advertising | $700 |
| Riverboat rental | $4,800 |
| Floorshow and strolling entertainers | $1,000 |
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| The committee members would like to charge $30 per person for the evening’s activities. |
| Required: |
| 1. |
Compute the break-even point for the Extravaganza (in terms of the number of persons that must attend).
|
| 2. |
Assume
that only 250 persons attended the Extravaganza last year. If the same
number attend this year, what price per ticket must be charged to break
even? (Omit the "$" sign in your response.)
|
Explanation:
| 1. |
| The contribution margin per person would be: |
| | | | | |
| Price per ticket | | | $ | 30 |
| Variable expenses: | | | | |
| Dinner | $ | 7 | | |
| Favors and program | | 3 | | 10 |
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| Contribution margin per person | | | $ | 20 |
| | | |
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The fixed expenses of the Extravaganza total $8,000; therefore, the break-even point would be computed as follows:
|
| Profit | = | (Unit CM × Q) − Fixed expenses |
| $0 | = | (($30 − $10) × Q) − $8,000 |
| $0 | = | ($20 × Q) − $8,000 |
| $20Q | = | $8,000 |
| Q | = | $8,000 ÷ $20 |
| Q | = | 400 persons; or, at $30 per person, $12,000 |
| | | |
| Variable cost per person ($7 + $3) | $ | 10 |
| Fixed cost per person ($8,000 ÷ 250 persons) | | 32 |
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| Ticket price per person to break even | $ | 42 |
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