Exercise 4
Break- Even Analysis
Your task:
This is a variation of the problem in Exercise 3
Your task is to work out how much to charge the people (selling price) who participate so that the event will break even. You should assume that the event will attract 100 paying participants.
Information
Use the following information provided:
| Fixed costs | $1,000 | This covers the basic promotion costs, trophies and venue hire |
| Variable costs | $5 per person | You will spend $5 on every participant because you will give them a hat and a cold drink. |
| Total number of people | 100 | |
Methods for Solving
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Method 1 - Quick solution Use the formula on the right. However, some mathmatical skills will be required to rearrage the equation. You are given Fixed Costs and the Number of People, and therefore, with mathmatical skills, you can work out "Contribution". Once you have worked out "Contribution" the next and last step is to work out what you must charge participants (selling price). Contribution = Selling Price - Variable Cost |
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Method 2 - Excel worksheet approach This is the recommended approach for all variations of this problem, simple or complex. Build a worksheet with an Income and an Expenditure section. There is only one form of Income but that does not matter. Get used to using this standard approach. Once you have designed the spreadsheet, simply insert figures that you are given. Finally insert the unknown figure (Fee per person) on a trial and error basis until you have guessed the right answer. Because this is a break even problem, income must equal expenses. Don't forget this. |
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