Question

1. Your organization is seeking a contract with a large coaches meeting. In order to make a final decision on whether you want to accept the project, you have to conduct financial calculations and break-even analysis. Your organization is willing to accept the project if the total gross profit for the event is more than $5,000. Your client estimates that will be somewhere between 100-300 guests. The company pays $100 per person with a minimum of $10,000. You know your variable costs (food and beverage) total $30 per person. The total fixed costs are $4,000. Now calculate the maximum and the minimum gross profit that you can achieve for this event (3 points).

Answer 1

Gross profit = total Sales - total variable cost - Fixed cost

Minimun number of guests = 100

Maximum number of gueats = 300

Total sales = Number of guests * per guest earning

Total variable cost = Number of guests * per guest variable cost

• Maximum gross profit

Total sales = 300*100 =30000

Total variable cost = 300*30 = 9000

Fixed cost = 4000

Gross profit = 30000 - 9000 - 4000 = 17000

• Minimum gross profit

Total sales = 100*100 =10000

Total variable cost = 100*30 = 3000

Fixed cost = 4000

Gross profit = 10000 - 3000 - 4000 = 3000

• Break even point

BEP(units) = Fixed cost / (selling price per unit - variable cost per unit)

= 4000 / (100 - 30) = 57 customers