Chi Omega Sorority is planning its annual Riverboat Extravaganza. The Extravaganza committee has assembled the following expected costs for the event:
Dinner (per person)…………………………………………………..$7.00 Favours and programme (per person)………….............................$3.00 Band ………………………………………………………………$1500.00 Tickets and advertising……………………………………………$700.00 Riverboat rental…………………………………………………..$4800.00 Floorshow and strolling entertainers……………………………$1000.00
Required
1. Compute the breakeven point for the Extravaganza (in terms of the number of persons that must attend).
2. Assume that only250 persons attended the Extravaganza last year. If the same number attends this year, what price per ticket must be charged to break even?
3. Refer to the original data ($30 ticket price per person). Prepare a Cost – Volume – Price (CVP) graph for the Extravaganza from a zero level of activity up to 600 tickets sold. Number of persons should be placed on the horizontal (X) axis, and dollars should be placed on the vertical (Y) axis
4. Write two pros and two cons associated with the use of the Break even analysis as a planning tool.
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Answer:
Contribution Format Income Statement
Total
Per Unit
Sales (8,050 units x $26)
$209,300
$26.00
Variable expenses
144,900
18.00
Contribution margin
64,400
$ 8.00
Fixed expenses
56,000
Net operating income
$ 8,400
Step 2 of 3
2)
Contribution Format Income Statement
Total
Per Unit
Sales (7,950 units x $26)
$206,700
$26.00
Variable expenses
143,100
18.00
Contribution margin
63,600
$ 8.00
Fixed expenses
56,000
Net operating income
$ 7,600
Step 3 of 3
3)
Contribution Format Income Statement
Total
Per Unit
Sales (7,000 units x $26)
$182,000
$26.00
Variable expenses
126,000
18.00
Contribution margin
56,000
$ 8.00
Fixed expenses
56,000
Net operating income
$ 0
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