1) 4+1.5+1.5+1.5=8.5 per person spent. (4 cards per person, first costs 4, next three cost 1.5 each).
8.5(per person) * 200(people) = $1700
$1700 - $600 (rent) = $1100.
$1,100 could be spent in prizes and still break even.
2) If 100 people attended ($850 total revenue), then the church would operate at a significant loss.
$850-$600 (rent) = $250 - $1,100 = ($850)
An $850 loss would be taken each night. Already did 200, and if 300 attend then:
300 * 8.5 = 2550
2550-600=1950-1100=850 (profit of 850)
And on and on...
As more people attend, you make more since the cost doesn't change based on how many people are there (it's all fixed cost according to the problem).
3) Now the problem changes. Fixed costs are now 200, and variable costs are 2. Basically, that means that instead of taking in 8.50 per person, $2 of each 8.50 goes to cost. That means that now each customer brings 6.50 to cover that fixed cost. Now, 6.50 * 100= 650, 6.50 * 200= 1300, 6.50 * 300=1950. You've got to cover 200 in rent, and 1100 in prizes. You cannot do that with only 100 people attending, as you can see you'll take a loss of 650 in that scenario. You must have 200 show up to break even, and 300 will generate a profit. The results are different because less profit (although the same amount of revenue) is generated per person in this new scenario, as a variable cost has been introduced.
I don't know which formulas to use for these questions.
Many churches sponsor bingo games, a tradition stemming from the time when only specific nonprofit
institutions were allowed to sponsor games of chance. Reverend Justin Olds, the pastor of a new parish in Orange County, is investigating the desirability of conducting weekly bingo nights.
The parish has no hall, but a local hotel would be willing to commit its hall for a lump-sum rental of
$600 per night. The rent would include cleaning, setting up and taking down the tables and chairs,
and so on.
1. A local printer would provide bingo cards in return for free advertising. Local merchants would
donate door prizes. The services of clerks, callers, security force, and others would be donated by
volunteers. Admission would be $4.00 per person, entitling the player to 1 card; extra cards would
be $1.50 each. Many persons buy extra cards so there would be an average of 4 cards played per person. What is the maximum in total cash prizes that the church may award and still break even
if 200 persons attend each weekly session?
2. Suppose the total cash prizes are $1,100. What will be the church’s operating income if 100 persons
attend? If 200 persons attend? If 300 persons attend? Briefly explain the effects of the cost behavior on income.
3. After operating for 10 months, Reverend Olds is thinking of negotiating a different rental
arrangement but keeping the prize money unchanged at $1,100. Suppose the rent is $200 per night plus $2 per person. Compute the operating income for attendance of 100, 200, and 300 persons,
respectively. Explain why the results differ from those in requirement 2.
1 answer
1 answer