BM1710

ACTIVITY FOR CAPACITY PLANNING

1. John has been asked to determine whether the ₱22.50 cost of tickets for the community dinner theater
will allow the group to achieve break-even and whether the 175 seating capacity is adequate. The cost
for each performance of a 10-performance run is ₱2,500. The facility rental cost for the entire 10
performances is ₱10,000. Drinks and parking are extra charges and have their own price and variable
costs, as shown below:

a. Fill in the table and solve for the break-even point in peso

𝐹 10,000
𝐵𝐸𝑃𝑃ℎ𝑝 = = = ₱𝟏𝟕, 𝟗𝟖𝟓. 𝟔𝟏
𝑉𝑖 0.556
Σ[(1 − ) 𝑥𝑊𝑖 ]
𝑃𝑖

b. What can you say about the results?

This means that John must average sales of ₱𝟏𝟕, 𝟗𝟖𝟓. 𝟔𝟏 per year to break-even. Thus, if
forecasted sales of ₱𝟓, 𝟑𝟏𝟐. 𝟓𝟎 is correct, John will earn money, as break-even is at ₱𝟏𝟕, 𝟗𝟖𝟓. 𝟔𝟏.

2. James Lawson’s Bed and Breakfast, in a small historic Mississippi town, must decide how to subdivide
(remodel) the large old home that will become its inn. There are three (3) alternatives: Option A would
modernize all baths and combine rooms, leaving the inn with four (4) suites, each suitable for two (2)
to four (4) adults. Option B would modernize only the second floor; the results would be six (6) suites,
four (4) for two (2) to four (4) adults, and two (2) for two (2) adults only. Option C (the status quo option)
leaves all walls intact. In this case, there are eight (8) rooms available, but only two (2) are suitable for
four (4) adults, and four (4) rooms will not have private baths. Below are the details of profit and demand
patterns that will accompany each option:

Which option has the highest expected monetary value?

-Based on EVM criteria, James Lawson should modernize all.

3. What is the present value of ₱5,600 with an interest rate of 8% when not returned for 15 years?

𝐹𝑣 5600
𝑃𝑣 = = = 𝟏, 𝟕𝟔𝟓. 𝟑𝟓
(1 + 𝑖)𝑛 (1 + 0.08)15