Question

1. Southwestern College is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet:

Option 1: Crestview Country Club

• Fixed rental cost of $1,000
• $12 per person for food

Option 2: Tallgrass Country Club

• Fixed rental costs of $3,000
• A caterer who charges $8 per person for food

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Thickets are expected to be $30 per person. Local business supporters will donate any other items required for the event. Which option provides the greatest operating income if 600 people attend?

1. Option one
2. Option two
3. Operating incomes are identical
4. Operating income is indeterminable

Answer 1

Option 1 18,000.00 $ Option 2 18,000.00 A A Revenue (600 People x $30) Less: Variable Costs: Food Expenses (600 x $12;600x$8) Contribution Margin Less: Fixed Rental Costs Less: Administrative & Marketing Expenses Less: Band Expenses Net Operating Income (7,200.00) $ 10,800.00 $ (1,000.00) $ (4,800.00) 13,200.00 (3,000.00) U $ (1,800.00) $ (800.00) $ 7,200.00 $ (1,800.00) (800.00) 7,600.00 Option 2 results higher Operating Income So, Option b is Correct Answer.