Joe is a voluntary club administrator and he has the responsibility to organise a sporting event.
This event requires the expenditure of the following amounts:
Venue Hire 
$400.00

Advertising and Promotion Costs 
$300.00

Trophies 
$200.00

Telephone, Postage and Stationery 
$100.00

Total Fixed Costs 
$1,000.00

These amounts will be spent no matter how many people turn up to the event, and therefore they are Fixed.
At event, however, there will be other costs which will be dependant upon the number of people who turn up and participate. These costs are as follows:
Each competitor will receive 
each

Food and drink 
$10.00

Hat 
$5.00

Variable Costs per Competitor 
$15.00

These costs are referred to as variable costs because the amount of cost will vary with the number of competitors.
Joe is worried about how many competitors he needs to breakeven if he charges a competition entry price of $20.00 per participant. The term breakeven means that all event costs will just be covered by the income he receives from the competitors.
This problem is an everyday problem for businesses of all types but fortunately it is not a difficult one.
In solving this type of problem it is necessary to distinguish between fixed and variable costs (as above). This is how Joe calculates the solution:
Competition Entry Fee 
$20.00

less  
Variable Costs per Competitor 
$15.00

Contribution
of each Competitor towards Fixed Costs 
$5.00



Total Fixed Costs 
$1,000

divided by Contribution 
$5.00

No of competitors required is 1000/5 = 200 
The above a solution is a commonsense way of putting it but if you would like a formula this one is an easy one to remember:
Formula for BreakEven Point 
Fixed
Costs
Price  Variable Costs 
Don't forget that (Price  Variable Costs) = Contribution 
Copyright Leo Isaac 2002
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