Vocational :: Business and Management Studies:

Vocational A. Calculate break even point on the basis of average guest per week. - Break even = Fixed costs Contribution - Fixed costs =  £35,000 +  £8,650 =  £43,650 - Contribution = Selling price – Variable costs - Selling price =  £150 per person - Variable costs =  £35 +  £3 + £5 +  £10 =  £53 - Contribution =  £150 -  £53 =  £97 - Break even =  £43,650  £97 = 450 guests - This shows that 450 guests are to be held within a 30 week period. Therefore for the charity to break even 15 guest are required each week. In order to heck that the answer I came to is correct I will take the 450 guests (answer I came to) and, should the answer be correct, income – (fixed costs + variable costs) would be equal to 0. Income = 450 x  £150 =  £67,500 Fixed costs =  £43, 650 Expenditure = 450 x Variable costs = 450 x  £53 =  £23, 850 Fixed costs + Variable costs =  £23,850 +  £43,650 =  £67,500 Therefore income – (fixed costs + variable costs) =  £67,500 -  £67,500 = 0 B. Assume that the holiday home is full (20 guests) for the whole period (30 weeks). Calculate the margin of safety and the sales price that could be charged per guest to break-even. -Margin of safety = maximum number of residents – break even -Max number of residents = 600 -Break even = 450 Therefore margin of safety = 600 – 450 = 150 guests When referring to the margin of safety equalling 150, in simple terms this means that the charity can drop 150 guests and still not make a loss. By dividing 150 by 30 it can also be seen that they can drop 5 guests per week making the break even point of 15 guests. Sales Price Selling price x Contribution = 150 x 97 = 14,550 Maximum income =  £150 x 600 = 90,000 (with 600 being the total number of guests.) 90,000 – 14,550 =  £75,450  £75,450 600 = 125.75 This tells us that  £125.75 can be offered to residents to break even. In order to check that the resulting answer is in fact correct I will total all costs and, if the my original answer is correct, they should equal  £75,450 Fixed costs =  £43,650 Variable costs =  £53 x 600 (number of guests) =  £31,800  £43,650 +  £31,800 =  £75,450 - £75,450 600 = £125.75 (per guest) Therefore in order for the charity to break even a charge of  £125.75 can be given to each person. C. The charity can extend its accommodation by renting an adjoining property, this would allow a further 10 guests.