Solution to FRIENDS BREAK EVEN ANALYSIS CASE STUDY

Q.1

a. Break Even Point for Charms Break Even Point for Flames
Break Even Point = Fixed Cost Break Even Point = Fixed Cost
Contr. Margin Contr. Margin

B.E.P = 500+3000 B.E.P= 500+6000

60 - 5 60 - 5

B.E.P = 64 tickets B.E.P= 119 tickets

b. B.E.P % = 64 x 100 B.E.P % = 119 X 100

200 200

B.E.P % = 32% B.E.P % = 59.50%

Q.2.

a.
Tickets Total Revenue Total V.C Total F.C Profit
150 9,000 750 3500 4,750
200 12,000 1000 3500 7,500
250 15,000 1250 3500 10,250
300 18,000 1500 3500 13,000

b.
Tickets Total Revenue Total V.C Total F.C Profit
150 9,000 750 6500 1,750
200 12,000 1000 6500 4,500
250 15,000 1250 6500 7,250
300 18,000 1500 6500 10,000

Q.3
119 - 64 = 55 tickets

Q.4
Fixed
Unit Sales = Costs + Target Profit
 C.M per unit
Charms Flames
Unit Sales = 3500 + 8000 Unit sales = 6500 + 8000
55 55
Unit Sales = 209 tickets Unit sales = 264 tickets

Q.5
Finding the profit levels at maximum and minimum limits

Profit = [Unit Sales (Q) x C.M] - F.C

Lower limit = 150 tickets

P = 50 P = 40 P = 40
Q = 150 Q = 170 Q = 190

Charms $4,750 $4,150 $5,050

Flames $1,750 $1,150 $2,050

Upper limit = 200 tickets

P = 50 P = 40 P = 40
Q = 200 Q = 220 Q = 240

Charms $7,500 $6,400 $7,300

Flames $4,500 $3,400 $4,300

Q.6
Selecting Charms is more profitable solution since the Friends concern is to get by this year
and then concentrate on future dances. If price level is reduced to $40, Charms yeild profit
of $7300 while Flames result in disappointing $4300. Although it is probable that 200 tickets
can be sold even in case of Chars as well, however in case of not meeting with the goal of
selling 200 tickets, the higher overhead costs of selecting Flames will result in losses which
not acceptable for the organization. Break Even point percentage in case of Charms is 32%
while in case of Flames it is 59.5%. Organizations prefer lower B.E point to gain increased
profits. As found in question 5, Friends is unable to generate $8000 even under best case
scenario with 240 tickets sold, in this situation, it is better to pick Charms yielding higher
profit to stand on its own this year. Moreover even in worse case scenario with 150 tickets
 sold, Charms gives 2.5 times the profit i.e. $4750 vs 1750. Choosing Flames will give the
organization qualitative benefits over Charms.

Profit for Charms = 270 x 60 - (1350 + 3500)

Q.8 Profit = $11,350

Profit for Flames = 270 x 60 - (1350 + 6500)

Profit = $8,350

Charms gives immediate profit to the company which is why it is preferrable.

Q.9
The demand curve suggests about the band that has more demand as compared to the other.
If opportunity costs, demand curves are same, profits are the same. If both are equally famous
we cannot choose one among the two options.