The Big Event (TBE) recently started a business organizing food and music at weddings and other large events. In order to better understand the profitability of the business, the owner has asked you for an analysis of costs—what costs are fixed, what costs are variable, and so on, for each event. You have the following cost information:
Music costs: $ 10,000 per event
Food: $ 65 per guest
Setup/ cleanup: $ 15 per guest
Fixed fee: $ 4,000 per event
The Big Event has allowed the caterer, who is also new in business, to place business cards on each table as a form of advertising. This has proved quite effective, and the caterer gives TBE a discount of $ 5 per guest in exchange for allowing the caterer to advertise.
1. Draw a graph depicting fixed costs, variable costs, and total costs for each event versus the number of guests.
2. Suppose 150 persons attend the next event. What is TBE’s total net cost and the cost per attendee?
3. Suppose instead that 200 persons attend. What is TBE’s total net cost and the cost per attendee.
4. How should TBE charge customers for its services? Explain briefly.