Financial Analysis of Decision Concerning Party

Ticket Sales Price

Event planning is one of the challenging businesses as it involves a lot of risks. When planning, one assumes that the targeted audience will attend the occasion and be willing the pay the charged prices. The current analysis is a comedy party targeting Maryland citizens. The occurrence is expected to draw at least 1000 participants from around Maryland City. With this estimation of attendees, each ticket will cost $150, as this is the minimum amount, which can sustain all the expenses and result in a significant profit margin.

The price mentioned above is considered due to several circumstances surrounding the event business in the area. In particular, the cost is arrived at based on the need for competition with the already existing organizations. According to Baker, Timothy, Collier, and Jayaraman (309), competitive pricing involves choosing strategic pricing levels, which help an organization to take advantage of the service or goods it offers based on the prevailing market trends. This approach is used because several other groups and individuals hold comedy events, such as Winston Hodges, Rik Roberts, and Julie and Derrick (The Bash). Moreover, the price has been chosen because it is one of the most stable in the industry. The companies charging more for tickets consider other costs, which are not directly related to the event.

Booking most of these groups and individuals indicates that their charges can go as high as $350 per person, assuming a capacity of a thousand participants. Most of these charges include drinks and other forms of entertainment. However, the present event planning charges specifically for the comedy part, leaving other costs at the choice of the participants. For instance, any person can choose to buy drinks or not, based on their budgets. This approach gives this event a competitive edge over its competitors, first due to low costs and flexibility of the participants.

Estimation of Major Expenses

Events have some of the expenses which are inevitable for it to be successful. In this comedy occurrence, the major expenses incurred include wages paid to the supporting teams, such as the band and master of ceremony. Other costs include renting the venue, marketing the event, paying basic utilities such as electricity and bathrooms, paying for the event insurance, and buying a bottle of water for every. Specifically, the expenses are presented in the following Tables 1, 2, and 3, with the allocated costs for each item.

Table 1. Fixed Cost.

Salaries and Wages 30000
Employee related expenses 7500
Utilities 5000
Rent 2000
Insurance 2500
Marketing 8000

Table 2. Variable Cost.

Drinks 3500
Chairs 1500

Table 3. Operating Income.

Interest incurred on loan 5000
Income tax 10000

The variable cost in table 2 determines the cost of attending the event, hence the price of each ticket. For this reason, it was considered that each participant would be given a bottle of a drink of their choice at the standard price. However, the chairs are temporarily estimated to be 1000, with an extra 200 ready to order when the number of pre-booked tickets exceeds the initial estimate. Table 3 shows the expenses derived from the income received from the business. The interest incurred on the loan has been pegged at 10%, whereby the business borrowed $50,000 to finance the party. The income tax is calculated using 12%, based on the US tax policy (Tax Policy Center). These figures reduce the expected revenue, hence result in the net profit of the business engagement.

The Break-Even point Calculation

The break-even point indicates the level of operation at which a firm’s revenue equals its operations costs. The determination of this value allows a business to know when it will begin to make profits. When a company’s revenue is less than the break-even point, this indicates that the firm is operating at a loss. On the other hand, if the break-even point is higher, it shows that the business profits from its operations (Kucharski and Janusz 141). In this case, the break-even point is determined as follows:

Fixed cost = $55, 000

Variable cost = $20 per bottle + $30 per chair = $50.

Ticket value = $150

Break-even = Fixed cost/ (Ticket value – variable cost) = 55,000/ (150 – 50) = 550 tickets

This calculation indicates that the business will begin to profit after selling 550 tickets. Therefore, the party must strive to attract at least 550 participants for it to settle all the expenses and the costs of its revenue.

Location of the Party

This event will be held in Maryland City, which is one of the ideal decisions for parties within Maryland. According to Data USA, Maryland City has a population of 17,736, with a median age of 35.1 years (Data USA). The city’s median income is $103,179, which is shows that most people can easily spend $150 for a ticket to a party. Moreover, the age variation indicates an active target for events.

Potential Revenue for the Party

The event requires some basic elements before it begins officially. For instance, it requires the venue, all the necessary utilities, and it must be advertised to reach as many potential targets as possible. To determine the revenue expected from the event, it is assumed that the marketing approach used will result in many visitors. Therefore, the event is initially meant to target 1000 people. Based on the sum of the operating expenses and operating incomes, which is $100,000, it follows that the tickets must generate the money to cover the costs and generate profits. Assuming a successful promotion, which results in 1000 participants, the party will generate $150,000 in revenue. This income is higher than the break-even, showing that the party will profit the business.

Income Statement

The income statement, along with balance and cash flow, reports the financial performance over a given financial period. The party to be held will have generate its revenue from the sale of tickets as shown in Table 4. In the income statement, net income, which is a major indicator of the operation, is determined using the formula:

Net income = (Revenue + Gains) – (Expenses + Losses), which is the difference between money in-flows and money out-flows. The analysis of the financial performance of this party reveals that the event will generate a net profit of $50,000 as shown in Table 5.

Table 4. Potential Sales.

Particulars Quantity Price Per Quantity Total
Tickets 1,000 $150 $150,000

Table 5. Income Statement of the Party.

The Party
Income Statement for the Period Ending 30/04/2021
Revenue 150000
Direct Costs 30000
Gross Margin 120000
gross Margin % 80%
Operating Expenses
Salaries and Wages 30000
Employee related expenses 7500
Utilities (electricity, drinks and chairs) 5000
Rent 2000
Insurance 2500
Marketing 8000
Total operating expenses 55000
Operating Income
Interest incurred on loan 5000
Income tax 10000
Total Expenses 100000
Net Profit 50000
Net profit % 33%

Decision Concerning the Party

The financial estimates and the targeted audience reveal the need to hold the party. First, the event is likely to attract many people since most similar occurrences have shown significant results. While the present condition of COVID-19 may affect the turnout, it is assumed that people have missed such parties and may have to turn up in large numbers. Secondly, the party will generate a profit of $50,000 with 1000 participants, which shows the need for effective marketing to influence the needed audience.

References

Baker, Timothy, David Collier, and Vaidy Jayaraman. “A new pricing strategy evaluation model.” International Journal of Operational Research, vol. 29, no. 3, 2017, pp. 295-316.

The Bash. Maryland comedy groups. 2021. Web.

Data USA. Maryland City, MD. 2021. Web.

Kucharski, Rafał, and Janusz L. Wywiał. “Optimization of the break-even point for non-homogeneous products sales.” Zeszyty Teoretyczne Rachunkowości, vol. 101, no. 157, 2019, pp. 133-148.

Tax Policy Center. How do federal income tax rates work. 2021. Web.

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