Question

You are a cost management consultant and you have been asked by a small business owner for business advice. Your client owns a chain of small, local operations that support larger caterers for special events. Your client provides the tents for outside events, the soft drinks and snacks for the children of events, along with floral and other decorative arrangements. This kind of business is extremely competitive and your client would like to know how far she can lower her prices without losing money. Currently, the chain of operations has $22,500,000 of revenue from 5,000 events that they have serviced. The cost data she can provide you includes: Floral costs, $200 per event, Table arrangements, $100 per event, Soft drinks and children snacks, $500 per event, Annual allocated costs of tents and other structures, $500,000, Annual allocated costs of trucks and vehicles, $2,000,000, Annual costs related to maintaining permanent staff, $3,500,000, Wage for temporary staff (paid per event), $1,800 per event. You begin your analysis, of course, with a break-even calculation. Superior papers will: Provide an accurate solution. Provide a narrative that defines and discusses the purpose of assigning cost categories of fixed and variable costs. Provide a narrative that defines and discusses the relationship of variable costs to contribution margin. Provide a narrative that discusses the limitations of the data. Provide a narrative that speculates what data is missing from the case.

Answer 1

in units in value   

Total revenue 5000 22,500,000

Variable Expenses

Floral cost 200

Table arrangements 100

soft drinks and children snacks 500

wage for temporary staff 1800

Total variable cost 2600 13,000,000

Contribution 3400 9,500,000

Tota; Fixed cost

Trends and otheer structures 500,000

Truck and vehicles 2,000,000

Wages for permenent staff 3,500,000

Total 6,000,000 6,000,000

Profit 3,500,000

Break even point at which there is no profit and no loss. Total variable and fixed is equivalant to total revenue. While analysing the cost and profit the fixed and variable cost takes an important role in the price decision. Because the fixed cost is constant if he runs the business or not. The variable cost will vary according to the units sole. So he should fix the price at the break even point plus the percentage of profit who wishes. In that accasion he also consider the competitors price also. The only he stands in the market without any loss. Here the Break even point is Toal variable cost+toal fixed cost) So 2600X5000units+6,000,000=$19,000,000..The revenue be above $19,000,000.to earn profit