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Break-Even Analysis BERGONIO

The document calculates the break-even points for two bands, The Flames and The Charms, who are being considered to perform at a dance. The Charms has a lower break-even point of 32% compared to 59.5% for The Flames. Tables are presented showing projected profits for each band at different ticket levels and prices. Based on the analysis, The Charms is recommended as it provides higher profits even if fewer than the targeted 200 tickets are sold. Knowledge of the demand curves for each band could further help determine which has greater demand and the optimal ticket price.

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Shang Dimol
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275 views

Break-Even Analysis BERGONIO

The document calculates the break-even points for two bands, The Flames and The Charms, who are being considered to perform at a dance. The Charms has a lower break-even point of 32% compared to 59.5% for The Flames. Tables are presented showing projected profits for each band at different ticket levels and prices. Based on the analysis, The Charms is recommended as it provides higher profits even if fewer than the targeted 200 tickets are sold. Knowledge of the demand curves for each band could further help determine which has greater demand and the optimal ticket price.

Uploaded by

Shang Dimol
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1. Calculate the break-even tickets sales for each band.

BEP for Flames

BEP= Fixed cost/Contribution margin

BEP= 500+6000/ 60-5

BEP= 119 tickets/200 x 100

BEP %= 59.50%

BEP for Charms

BEP= Fixed cost/Contribution margin

BEP= 500+3000/ 60-5

BEP= 64 tickets/200 x 100

BEP= 32%

2. Assume the Charms are selected. Develop a table showing the profits on the dance at the following
tickets level 150, 200, 250, 300

The Charms

Tickets Total Revenue Total VC Total FC Profit


150 9000 750 3500 4750
200 12000 1000 3500 7500
250 15000 1250 3500 10250
300 18000 1500 3500 13000

The Flames

Tickets Total Revenue Total VC Total FC Profit


150 9000 750 6500 1750
200 12000 1000 6500 4500
250 15000 1250 6500 7250
300 18000 1500 6500 10000

3. How many extra tickets must be sold to compensate for the higher cost of the Flames?
119 - 64= 55 tickets

4. If the Dance is to raise $8000, How many tickets must be sold if the Flames are used? The Charms?

The Flames

Unit sales= Cost + Target profit/ CM per unit

Unit sales= 6500 + 8000/55


Unit sales= 264 tickets

The Charms

Unit sales= Cost + Target profit/ CM per unit

Unit sales= 3500 + 8000/55


Unit sales= 209 tickets

5. Evaluate the proposal to lower the price of a ticket to $40. What implications, if any, does it have for
the band choice?

Profit= [Unit sales (Q) x Contribution Margin] - Fixed Cost

Lower Limit= 150 tickets

P= 50 P= 40 P= 40

Q= 150 Q=170 Q= 190

The Charms 4750 4150 5050


The Flames 1750 1150 2050

Upper limit= 200 tickets

P= 50 P= 40 P= 40

Q= 200 Q=220 Q= 240

The Charms 7500 6400 7300


The Flames 4500 3400 4300

Charms profit of $7300 vs the Flames $4300 at the price of $40 ticket.

6. Based on your previous answers and other information provided in the case, which band would you
pick? Why?
For me, choosing The Charms would be a better idea since, I think the organization should focus on the
concern to raise its yearly estimated deficit first. Reducing the ticket to $40 profit of charms ($7300) is
way better than the flames ($4300). Although it is probable that 200 tickets can be sold in both bands, but
in the case of not meeting the goal of selling the 200 tickets the higher overhead cost of selecting The
Flames will not be beneficial for the organization. Selecting a Lower Break-even point percentage to gain
increased profits, thus choosing the Charms with 32 5 vs the Flames 59.5% is more acceptable.

7. The break-even and profit formulas you used are based on certain assumptions. What are they? Are
they likely to hold for this situation? Explain.

Break-even analysis entails calculating and examining the margin of safety for an entity based on the
revenues collected and associated costs. In other words, the analysis shows how many sales it takes to pay
for the cost of doing business. Analyzing different price levels relating to various levels of demand, the
break-even analysis determines what level of sales are necessary to cover the company's total fixed
costs.It looks at the level of fixed costs relative to the profit earned by each additional unit produced and
sold. In general, a company with lower fixed costs will have a lower break-even point of sale. For
example, a company with $0 of fixed costs will automatically have broken even upon the sale of the first
product assuming variable costs do not exceed sales revenue.
Break Even point percentage in case of Charms is 32% while in case of Flames it is 59.5%. Organizations
prefer lower B.E point to gain increased profits. As found in question 5, Friends is unable to generate
$8000 even under best case scenario with 240 tickets sold, in this situation, it is better to pick Charms
yielding higher profit to stand on its own this year. Moreover even in worse case scenario with 150 tickets
sold, Charms gives 2.5 times the profit i.e. $4750 vs 1750. Choosing Flames will give the organization
qualitative benefits over Charms.

8. Suppose the dance organizers were sure that 270 tickets could be sold at a price of $50 regardless of
the band use? How would this affect the choice?

Profit for The Charms= 270 x 60 (1350 + 3500)


profit= 11,350

Profit for The Flames= 270 x 60 (1350+6500)


Profit= $8, 350

The Charms is more profitable to the organization, Hence is the choice to perform in the event.

9. How would knowledge of the demand curve for each band be helpful for determining which group
to use and what price to charge?

The demand curve suggests about the band that has more demand as compared to the other. If opportunity
costs, demand curves are same, profits are the same. If both are equally famous we cannot choose one
among the two options.

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