Comprehensive Break-Even Analysis of a Special Event Support Business

This report provides a break-even analysis for a special event support business, determining the point at which total revenue equals total costs. The analysis identifies fixed costs (annual allocated costs of tents, trucks, and permanent staff) and variable costs (floral costs, table arrangements, soft drinks, and temporary staff wages). Calculations reveal a break-even point of 3158 events or $14,211,000 in revenue, with a contribution margin of 42.22%. The report also highlights data limitations, such as the assumption of uniform event pricing and the absence of transportation costs, depreciation, administrative costs, and borrowing costs. References to relevant costing and cost allocation concepts are included. Desklib provides students with access to this assignment and other helpful resources for their studies.

Special Event Support Business Advice
Break even is the point where the contribution generated is equal to the fixed cost. This thus
creates a no profit and no loss situation. By identifying the break even point (either in units or
amount) we can ascertain the bare minimum units to be sold or revenue to be generated so
that we are able to recover our costs.
In the present case the break even point is: 3158 (3157.89) events or revenue equivalent to
$14,211,000.00 considering that each event is charged equally i.e. $4500 per event.
However, if it were considered that every event has been charged differently the break-even
revenue would be $14,210,526.32. Thus, after achieving the desired break even, the services
can be sold at any cost over and above the variable costs, thus giving a leverage of $ 1,900.00
to the service provider, any additional bid can be quoted over and above $ 2,600.00, giving a
competitive advantage.
For the above calculation costs have been identified as variable and fixed on the basis if their
nature of occurrence; where variable costs are the costs that occur only if an event is
organized, the fixed costs are costs that occur irrespective of the fact that event is organized
or not.
Fixed Costs:
Particulars Reason
Annual allocated costs of tents
and other structures
These costs do not vary with the number of events held, i.e.
the annual costs would be the same even if 1 event were
held.
Annual allocated costs of
trucks and vehicles
These cost prima facie should be semi variable but since
breakup of the variable component is unavailable these
have been categorized under fixed costs.
Annual costs related to
maintaining permanent staff
Permanent staff has to be paid irrespective of the number
of events done; they are usually hired on monthly or
weekly pay basis.

Variable Costs:
Particulars Reason
Floral costs These are incurred only when an event is held and the floral
arrangements are made thus making them variable.
Table arrangements Depending on the number of events the costs of table arrangements
vary, as these are needed only when an event is held.
Soft drinks and
children snacks
Similar to the above two costs soft drinks and children snacks are
purely variable.
Wage for temporary
staff (paid per event)
As specifically mentioned, these are paid per event unlike the
permanent staff thus making them variable in nature.
Calculations:
Tents & other
structure
500,000.00
Trucks & vehicles 2,000,000.00
Permanent Staff 3,500,000.00
Total Fixed Costs 6,000,000.00
As provided, the total revenue generated from 5000 events is $ 22,500,000.00, assuming that
every event has been charged evenly, the charge per event is $ 4,500.00.
Contribution earned per unit would be $ 1,900.00, making that a contribution margin of
42.22%, this being a highly competitive business, it can be said that this is a reasonably well
contribution margin. For the understanding of relevance of contribution margin, contribution
is the extra revenue earned with sale of an additional unit. Thus with each event conducted
there will be generation of $1,900.00 revenue. As the method of calculation of calculation of
contribution suggests, contribution is sales revenue less variable cost. There thus exists an
inverse relationship between contribution and variable costs; the more the variable costs
lesser would be the contribution.
Floral costs 200.00
Table arrangements 100.00
Soft drinks n snacks 500.00
Temporary staff 1,800.00
Total Variable Costs 2,600.00

The above analysis has been made considering the data given, however there are certain
limitations to the data that are listed below:
 Total revenue has been given, making us assume that all the 5000 events have been
priced equally, however in practical every event would be variably priced since every
event would have a separate set of requirements.
 Allocated costs of trucks and vehicles have been given in fixed cost section, however
being pragmatic about it, transportation costs should be variable depending on the
distance required to be travelled for each event.
 It has not been given whether 5000 events have been conducted within the span of 1
year, however the remaining data has been given per year, it has been considered that
these events have also been conducted over the year.
The following data is clearly missing from the case:
 Transportation costs (event vise) have not been given, these are relevant costs like
that include loading unloading charges, fuel costs etc.
 Given the fact that these are services provided for special events, no specific costs
have been considered that might be needed as per the requirement of the event.
 Depreciation on furniture owned or other assets have not been considered.
 Administration costs of the business have not been considered.
 Borrowing costs like bank charges and interest costs have not been given and these
are relevant costs for any business.

Reference Content of Citation
Importance Of Break-Even Analysis -. (2017, July 28).
Retrieved February 06, 2019, from
http://rothschroderpc.ca/2017/07/importance-
breakeven-analysis/
Break-even analysis is important in
analysis of various areas of costing; the
relevant area here has been given above.
What is allocated cost? definition and meaning. (n.d.).
Retrieved February 06, 2019, from
http://www.businessdictionary.com/definition/allocated-
cost.html
Allocated costs are the type of expenses
clearly allocable to a particular unit or
business project or service.
Kenton, W. (2018, December 13). Variable Cost.
Retrieved February 6, 2019, from
https://www.investopedia.com/terms/v/variablecost.asp
Variable costs are the expenses that
change with the level of output.
Kenton, W. (2018, December 13). Fixed Cost.
Retrieved February 06, 2019, from
https://www.investopedia.com/terms/f/fixedcost.asp
Fixed costs are expense or costs that do
not change with change in the level of
output.