Question

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event. Which option provides the greatest operating income if 600 people attend?
A) Option one
B) Operating incomes are identical
C) Option two
D) Operating income is indeterminable.

Answer 1

Answer:

These are the options for the question:

OPTION one: Crestview Country Club. Fixed rental cost of $1,000b. $12 per person for food

OPTION two: Tallgrass Country Club. Fixed rental cost of $3,000b. A caterer who charges $8.00 per person for food.

And this is the correct answer:

C) Option Two: operating income of $= $7,600

Explanation:

To find the answer, we simply substract all expenses from sales revenue.

OPTION ONE

Sales Reveue = $18,000 ($30 x 600)

Administrative and Marketing Costs = $1,800

Band Hire = $800

Crestview Rent = $1,000

Crestview Food = $7,200 ($12 x 600)

Operating Income = $18,000 - $1,800 - $800 - $1,000 - $7,200

                              = $7,200

OPTION TWO

Sales Revenue, Admin costs and band are the same, thus:

Tallgrass Rent = $3,000

Tallgrass Food = $4,800

Operating Income = $18,000 - $1,800 - $800 - $3,000 - $4,800

                               = $7,600