Which option provides greatest degree of operating leverage

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Beta Alpha Psi (BAP) is planning to hold a fundraising dinner at one of the local hotels. It has two options for the dinner:

OPTION 1: Banrymore Hotel

a. Fixed rental cost of $4,800

b. $8.00 per person for food

OPTION 2: Le Meridieon Hotel

a. Fixed rental cost of $2,500

b. $11 per person for food

In addition to the rental costs, Beta Alpha Psi will incur an additional $1,600 administrative and marketing expenses. Beta Alpha Psi will sell tickets for $35 per person.

Question 1: Which option provides the least amount of risk? Explain.

Question 2: Calculate the break even point (sales or units) for each option. Which option has the lowest breakeven point? Show your calculations.

Question 3: Which option BAP choose if 600 people are expected to attend? Show your calculations.

Question 4: Which option provides the greatest degree of operating leverage if 600 people attend? How will profits change if an attendance increases by 10%?

Reference no: EM132609869

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