Quote:
Originally Posted by neurodistortion
I'm somewhat confused on this question. This is how it's worded:
Your college football fan club is planning a tailgate party as a fund raiser. You are planning a menu for the party. You must determine the fixed and variable costs of the party. You must categorize the menu items needed into either fixed or variable cost. You must decide on the ticket price you are going to charge for each person attending. Your tasks are to:
- Determine the number of people who must attend so that your club breaks even on the party.
- Determine the number of people who must attend if your club wishes to make a profit of $1,000 on the party.
I know a little bit about fixed and variable costs but I'm confused as to how to calculate each cost for the items and so forth. Apparently I have to plan a menu from scratch, determine the costs for each item and hoping that it breaks even. Anyone able to give me a jump start on this?
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I usually dont help with homework, but this is so simple I cant avoid it
Variable costs are costs that move based on production or output requirement
Fixed costs are costs that dont move.
For instance, in your example, fixed cost might be the cost to rent the facility, while a variable cost might be drinks or waiter hours.
The questions you are being asked is, at what point will your party break even. This is the point where your total costs come to your total revenue. The easiest way to do this is to find at what point the cost per ticket is exactly the price per ticket. The trick of this is diving the fixed cost down to a "per ticket" value, when the number of tickets is a variable. Now, confusingly enough, your problem has no given variable for the ticket price, so, you could literally just add up your fixed cost with your variable cost, and sell 1 ticket at that price.
However, your equation would always look like this
Total number of units needed= Total Fixed Cost/price-variable cost per unit
This equation literally subtracts out the per unit variable contribution to the price of the unit, and divides the remaining fixed cost into the total units needed.
Before I start from the beginning, I have to make the assumption that you are able to identify a per unit cost per variable cost, and they are static and not staggered, because otherwise, you would just have to assume a ticket quantity as well.
That said, say fixed costs were $500, and variable costs per unit were $1, and you are given the freedom to determine ticket price, and you pick $10.
The equation would be tickets= $500/($10-$1) or $500/$9, or 56 tickets (rounded up).
To check that, the total revenue from 56 tickets at $10, is $560 bucks, the total cost is $500 + ($1*56), or $556 dollars. You would actually need to sell "half a ticket" to break exactly even.
To figure out how many tickets to profit $1000, just add $1000 to the fixed cost, so instead of $500, it would be $1500, and the equation would be x=$1500/($10-$1) or $1500/$9, 0r 167 tickets rounded up.
To check, 167 * 10 is 1670 revenue, 500 + (167*1) cost, or 667 cost, so, $1003 profit, again, youd have to sell a partial ticket to profit exactly $3.
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