Chapter 5 Exercise 2 The treasurer anticipates the following costs for the event

Question

Chapter 5 Exercise 2

The treasurer anticipates the following costs for the event, which will be held at the Regency Hotel:

Room rental $300

Dinner cost (per person) 25

Chartered buses 500

Favors and souvenirs (per person) 5

Band 900

Each person would pay $40 to attend; 200 attendees are expected.

a. Will the event be profitable for the sorority? Show computations.

b. How many people must attend for the sorority to break even?

c. Suppose the sorority encouraged its members to drive to the hotel and did not charter the buses. Further, a planned menu change will reduce the cost per meal by $2. If each member will still be charged $40, compute the contribution margin per person.

Explanation / Answer

a.
cost = 300 +500+900 + (25+5)*200 = 1700 +30*200
Revenue = 40*200 = 10*200 + 30*200 = 2000 +30*200
since revenue is more than cost => profitable.

b. Let the no. of people be x.

? 1700 + 30x = 40x =>x = 170 to break even.

c.Contribution margin per person = 40*200 - (300+28*200+900) / 200 =$6 per person.

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