To raise funds for its community activities, a Lions' Club chapter is negotiating with International Carnivals to bring its midway rides and games to town for a three-day opening. The event will be held on part of the parking lot of a local shopping centre, which is to receive 10% of the gross revenue. The Lions' Club members will sell the ride and game tickets at the site. International Carnivals requires either $15,000 plus 30% of revenue or $10,000 plus 50% of revenue. Contacts in other towns that have held the event indicate that customers spend an average of $10 per person on rides and games.
a) What is the break-even attendance under each basis for remunerating International Carnivals?
b) For each alternative, what will be the club's profit or loss if the attendance is: (i) 3,000? (ii) 2,200?
c) How would you briefly explain the advantages and disadvantages of the two alternatives to a club member?

Question

Quizplus · Accepted Answer

The Answer is a) Plan 1 = $2,500 and Plan 2 = $2,500; b) i) Plan 1 = $3,000 and Plan 2 = $2,000, ii) Plan 1 = -$1,800 and Plan 2 = -$1,200; c) If attendance surpasses the break-even point, the 30% commission rate generates the higher profit. However, if attendance falls short of the 2,500 break-even point, the 30% commission will produce the larger loss.

To Raise Funds for Its Community Activities, a Lions' Club