Question

Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the​ banquet: OPTION​ one: Crestview Country Club a. Fixed rental cost of​ $1,000 b.​ $12 per person for food OPTION​ two: Tallgrass Country Club a. Fixed rental cost of​ $3,000 b.​ $8.00 per person for food 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 has the lowest breakeven​ point?

Answer 1

Answer:

the Breakeven point for option one is lowest

Explanation:

Given:

Option One;

Fixed rental cost = $1,000

per person cost for food = $12

Option two;

Fixed rental cost = $3,000

per person cost for food = $8

administrative and marketing expenses = $1,800

Cost to hire band = $800

Price of ticket per person = $30

Now,

Total fixed cost under option One

= $1,000 + $1,800 + $800

= $3,600

and,

Total fixed cost under option two

= $3,000 + $1,800 + $800

= $5,600

also,

Contribution margin per ticket for option one

= $30 - $12

= $18

and,

Contribution margin per ticket for option two

= $30 - $8

= $22

Therefore,

Breakeven point for option one

=$\frac{\textup{Fixed cost}}{\textup{contribution margin per person}}$

= $\frac{\textup{3,600}}{\textup{18}}$

= 200 person

and,

Breakeven point for option two

=$\frac{\textup{Fixed cost}}{\textup{contribution margin per person}}$

= $\frac{\textup{5,600}}{\textup{22}}$

= 255 person

Hence, the Breakeven point for option one is lowest