Question

Chesterfield Dance Company is running a monthly regional dance event and competition. However, in the first four months, revenues from ticket sales have been below the total costs of running the event.

They have already paid for the venue and several instructors for the whole year. These costs cannot be recovered, even if they decided to cancel the event. Last month, the event generated revenues of $9,000 but incurred costs of $16,500 for net loss of $7,500. The event organiser estimates that the next month would experience similar revenues as the previous month. Their costs are as follows:

Fixed monthly costs:

Venue: $8,000

Trainers’ and Instructors’ salaries: $4,000

Variable monthly costs:

Transport: $1,000

Advertising: $2,000

Catering: $1,500

The Dance Company is having a board meeting to decide whether they should cancel the event immediately or keep running it for the remaining 6 months. What would your advice to the Chesterfield Dance Company be? Justify your decision.

Answer 1

Revenue: 9000

less: Variable costs

Transport- 1000

Advertising- 2000

Catering- 1500

Contribution = 4500$.

Note: Fixed costs are already paid and therefore not relevant for decision making.

Final answer- The event should be continued as it genrate positive contribution of $4500.