Question

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

Which option provides the greatest operating income if 600 people attend?

A) Option one
B) Option two
C) Operating incomes are identical
D) Operating income is indeterminable.

Answer 1

The correct answer is B

Step-by-step explanation:

Computing the greatest operating Income is as:

Under Option 1:

Operating Income = (Price Per Person × Number of people) - ( Number of people × Price per person in option 1) - Fixed rental Income - Budgeted administrative and marketing expenses - Cost to hire a band

= ($30 × 600) - (600 × $12) - $1,000 - $800 - $1,800

= $18,000 - $7,200 - $1,000 - $800 - $1,800

= $7,200

Under Option 2:

Operating Income = (Price Per Person × Number of people) - ( Number of people × Price per person in option 2) - Fixed rental Income - Budgeted administrative and marketing expenses - Cost to hire a band

= ($30 × 600) - (600 × $8) - $3,000 - $800 - $1,800

= $18,000 - $4,800 - $3,000 - $800 - $1,800

= $7,600

In Option 2, it has greatest operating Income.