Chapter 5 ICE 5-1 F18 - ICE 5-1 for Danny Siciliano PDF

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ICE 5-1 for Danny Siciliano...

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CHAPTER 5 - IN CLASS EXAMPLE 5-1

“OKTOBERFEST” Party Town has just won the bidding process to host an Oktoberfest party. PT is charging their guests an admission fee of $20 per person. PT has rented a large tent for $500 and the tent will accommodate up to 100 people. PT has contracted with Lowenbrau Beer to cater the party for $10 per person that attends (up to 100). 1) What is the equation for revenue if Y equals dollars and X equals people? REVENUE – EXPENSES = PROFIT SALES – COSTS = OPERATING INCOME (this and above are the same thing) Y=20x

2) What is the equation for costs if Y equals dollars and X equals people? y=bx+a y=500 +10x

3) What is the equation where revenue equals cost? What is this point called? If revenue = cost what is OI? If revenue = costs than OI is 0, this point is called the Break Even point Above this point starts to make profit, and below the point is not good

4) What is the breakeven point in dollars and units (people)? $1000 @ 50 people

5) What is the profit at 90 people? $400 20(90) – 500 – 10(90)

6) What is the profit at 93 people? What is the increase from 90 to 93 people? CM PER UNIT IS VERY IMPORTANT CONTRIBUTION MARGIN PER PERSON

7) If sales revenue increase $1,000, how much does operating income increase?

1000 * 50% = 500 THERE ARE A A LOT OF DIFFERENT AND CORRECT WAYS TO SOLVE THIS QUESTION, THE CMR IS ONE WAY THAT SEEMS LIKE IT WORKS FOR ME CMR IS BASICALLY THE % OF PROFIT GAINED FROM AN INCREASE IN PRICE

8) What number of people does PT need to bring in to achieve profits of 15% of sales?

71.45 people, perhaps children are cheaper to bring in

9) Should PT spend $100 to advertise the party if the result would be 9 additional people (assuming a 50 person baseline)?...