Introduction to Business Prof

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Introduction to Business Prof. Hannah Weiser Let’s Throw a Business Party! A case study to learn how to project sales, research and estimate expenses, and to calculate projected profit/loss. This analysis will include the development of an income statement and students will conduct a break even analysis. The project will require you to make a profitable party plan as a business consultant, determining whether the party is financially viable. Please be sure to review the assignment to determine the requirements. To determine whether your idea for a party is practical, you will need to research the costs of party finding costs in the industry and similar parties and venues as a way of 'benchmarking'. You will then need to think critically to answer a series of financial questions in paragraph form (see below). Steps to build the Income Statement Income Statement (also known as Profit/Loss Statement) Step 1: Determine the Projected Revenue - (# of tickets sold for the party multiplied by the price charged per ticket). You will need to review and utilize one of the sales projection methods from the Prezi overview for Financial Analysis. Step 2: Determine the major expenses (list each type of expense and how much you think it will be). Expenses should be listed as “Cost of Goods Sold” – these are your variable expenses for the party that change based on the number sold (e.g., food). Then, the remaining expenses should be listed as “Operating Expenses” – these are your fixed expenses for the party that remain the same no matter how many tickets you sell. Remember Breakeven? You will need to determine how many tickets you would need to sell at your ticket price to breakeven. Remember, the break even formula is: # of tickets needed to break even= fixed expenses (price charging per ticket - variable expenses, i.e., the cost per ticket ) Then, to determine the revenue needed to breakeven, just multiply the number of units necessary by the price you are charging per ticket. Step 3: Profit or Loss? Take your revenue and subtract all of the expenses. If there is money left over, you have a profit. However, If you have no money leftover, and you actually have more expenses than revenue, you are losing money. You may need to consider either (1) raising the price charged per ticket, or (2) lowering expenses. For the purpose of conducting this analysis, research expenses for the party. You will need to determine actual suppliers you can purchase from and actual estimated costs based on your research. Remember to cite all sources in MLA format! Introduction to Business Activity Prof. Hannah Weiser Answer the questions below in paragraph format. In order to answer the questions below you will need to conduct research and make assumptions. Please clearly indicate all assumptions you make throughout you answers to each question and cite any resources used using footnotes. (Hint: The lecture material from our financial analysis module and the 4ps of marketing module will be helpful in conducting this analysis). Make sure to use PICK Analysis in preparing your submission! Your paper should be 2-3 pages long, single spaced. 1. Determine the sales price for a ticket to your party. How did you come to this price? Remember to use the pricing strategies and objectives from the “pricing” section of our marketing overview, Ch. 13. You also will want to “benchmark” against your competition: Who are three competitors and what are they charging? What is your competitive advantage? Tip: Use pricing strategies and objectives from Learning Module 10 (pricing) in the text. 2. Identify, research, and estimate major expenses for your party to calculate what you expect the costs will be. You should get creative here about what you need for your party (e.g., security, a band, food, etc.). Determine whether the costs noted are fixed (operating expenses that do not change no matter how many tickets are sold) or variable (costs of goods sold, which change based on the number of tickets sold). (e.g., Staples charges $5 for a roll of tickets). 3. Using this proposed pricing structure and expenses for the first year, calculate the break even point - the number of tickets you need to sell to break even and the revenue needed to break even. Use the breakeven analysis information from the “pricing” section of our marketing overview,, and the activity available under the corresponding learning module 10 to help you understand how to conduct this analysis. 4. Identify a city and venue for this party in the state of Maryland, supporting your choice using population data (HINT: U.S. Census Bureau website) and additional information that supports your reasoning. 5. Based on your target market, and using sales projection methods from the financial analysis learning module 12 Prezi overview, project the potential sales (revenue) for this party. Will it exceed your break-even point? Tip: Make sure to use a strategy from the prezi overview, such as the “build up” approach. 6. Using the revenue information collected and the expense estimates, prepare an income statement (i.e., profit/loss statement) to calculate the projected profit/losses in year one for this business. Tip: Learning Module 12 can be used to help determine how to build an income statement. 7. Should we throw this party? Why or why not? Use the answers to the preceding questions to answer this question, supporting your reasoning with the financial information collected. 2 Anonymous 1 1. The cost of a ticket to my jazz party is $59.99. I came up with this price using two pricing strategies. First I used the competitive pricing strategy, which is defined as reducing “the emphasis on price competition by matching other firms’ prices” (Boone, p. 417). Second, I used the odd pricing strategy which is defined as a “pricing method using uneven amounts,” (Boone, p. 419) so that consumers would be more likely to purchase a ticket because the cost seems less than it actually is (Boone, p. 419). In benchmarking the ticket prices of competitors, there are several competitors to for this jazz party. One competitor would be the Bethesda Blues and Jazz Supper Club which charges $20 to $50 depending on the musician for admission (“Music Calendar”, n.d., p. 1). For the purposes of this paper, I will assume the average cost is $35 for admission by taking the average of those two prices ($20+$50= $70/2= $35). It is important to note that the admissions ticket does not include food or drink costs. Based on the menu available on their website, Bethesda Blues and Jazz Supper Club charges approximately $11 for appetizers, $28 for a main course and $10 for dessert (“Dining”, n.d., pp. 1-4). Drink prices were unavailable. Another competitor would be the Blues Alley D.C. Jazz Club which charges $25 to $45 depending on the musician for admission (“Events”, n.d., p. 1). For the purposes of this paper, I will assume the average cost is $35 for admission by taking the average of those two prices ($25+$45=$70/2=$35). Food and drink are not included in that price. Based on the menu available on their website, Blues Alley D.C. charges roughly $9.50 for appetizers, $22 for a main course and $7 for dessert (“Menu”, n.d., pp. 1-6). Drink pricing is not available. A third competitor would be the Bohemian Caverns Jazz Club in D.C. which charges a standard $20 admission fee (“Tickets”, n.d., p. 1). Food and drink are not included in the admissions cost. Based on the menu available on their site, they charge $8 for appetizers, $16 for main courses and $5 for sides (“Menu”, n.d., pp. 1-5). Pricing for desserts and drinks were not available. We have several distinct competitive advantages that separate us from the competition (Boone, p. 8). One competitive advantage is that we include food and a drink in our ticket price. You don’t have to worry about additional expenses just pay your admission fee at the front door, and you are all set for a great evening. Our second competitive advantage is that we are competitively priced when you factor in both the cost of food and admission. Our three competitors charge roughly $35, $35 and $20 for admission which averages out to $30 for admission ($35+$35+$20=$90/3= $30). In addition, they charge extra for food including a main course and a dessert which averages out to $33.50 ($22+$7=29 (Bethesda Blues and Jazz Supper Club). $28+10=$38 (Blues Alley D.C. Jazz Club). So, $38+$29=$67. 67/2= $33.50). I did not include Bohemian Caverns Jazz Club for comparative food pricing since dessert pricing was not available. I assumed that a non-alcoholic beverage would cost about $3 at these competitors. All in all, $30 admissions + $3 non-alcoholic beverage + $33.50 including main course and dessert = $66.50. So $59.99, our price, is $6 less than theirs so we are competitively priced since we cost less than our competitors when you factor in food and beverages costs in addition to the admissions price. Our third competitive advantage is where we are located. We are 1 block from the Bethesda Metro Station, and there are 2 large parking garages within 1 block as well making it extremely convenient for people to come. 2. My fixed costs are those costs that remain constant regardless of the number of people who attend (Boone, p. 415). An example would be the facility I am renting the Bethesda Round House Theatre which is $350 an hour (“Facility Use”, n.d., p. 1). I plan for the jazz party to be from 7-11 p.m. with the jazz band playing from 7:30-9 p.m. Then dinner from 9-10:30 p.m. and Anonymous 2 the jazz band finale from 10:30-11 p.m. I believe I would need to rent the facility for at least 1 hour before and after the show to allow people to set up and cleanup. So my total cost would be $350x6 hours which equals $2,100. In addition, I would need to buy a couple of cash registers to process people’s payments at the door. I would have 3 cash registers to process people quickly. 3 registers at $59.99 each would cost me a total of $179.97 (Staples, n.d., p. 1). I would pay 3 people minimum wage, which is $8.40 an hour in Montgomery County according to the state of Maryland’s DLLR, to man the registers for 1.5 hours (“Minimum Wage”, 2015, p. 1). I don’t believe I would have much difficulty finding three people who would work for 1.5 hours at $8.40 an hour because of the location of my party. Bethesda Round House Theatre is located 1 block from the Bethesda-Chevy Chase High School, and I think three high school students would eagerly work 1.5 hours to earn some money. They could take that money to go to a movie in downtown Bethesda or go out to Chipotle for dinner afterwards. I would also hire 3 off duty Montgomery County Police Officers to watch the cash registers, but also to act as security if need be. Based on my personal knowledge, I know officers make time and a half for off-duty work so given that an officer makes $48,981 a year and then divide that by 52 weeks in a year and then divide that by 40 hours a week you get a hourly rate of $23.55 (Montgomery County Police, n.d., p. 1). At time and a half it would cost $35.33 an hour per officer. I would hire 3 officers for 5 hours each so my cost would be $529.95 ($35.33x5x3=$529.99). A band costs approximately $750-$1500 for a four hour time slot (Sam Hill Entertainment, n.d., p. 1) For the purposes of this paper, I will assume the average cost is $1,125 for the band by taking the average of those two prices ($750+$1500=$2,250/2=$1,125). I am also allocating $1,000 for various types of advertisements and decorations. Table 1: Fixed Costs Rent Facility Hourly Rate/Cost $350.00 Off-duty Police $35.33 Officers Cashiers $8.40 Cash Register $59.99 Quantity (how many people) Duration (hours) Total Cost 1 6 $2,100.00 3 5 $529.95 3 1.5 $37.80 3 N/A $179.97 Band $1,125.00 1 4(contract min) $1,125.00 Advertising and Decorations Total Fixed Costs: $1,000.00 1 N/A $1,000.00 4,972.72 Anonymous 3 My variable costs are those cost that vary depending on the number of people that attend (Boone, p. 415). I would use Gist Family Catering which charges $18.50-$20 per person so I will assume the average cost per person would be $19.25 ($18.50+$20=$38.50/2=$19.25) (“Lunch and Dinner Menu,” n.d., pp.1-3). So assuming I sell 400 tickets, $19.25x400 would be $7,700. This per person price includes a drink (punch), several main courses to choose from along with several sides, dessert and paperware (“Lunch and Dinner Menu,” n.d., pp.1-3). Each server is $110.00 for up to 5 hours (“Lunch and Dinner Menu,” n.d., pp.1-3). Based on internet research, you generally need 1 server per 20 people (A Tasteful Affair, n.d., p. 1). So if I have 400 people attending, I need 20 servers which would cost $2,200 (400/20=20) ($110x20=$2,200). I would also need tables and chairs. A 72” round table sits approximately 11 people and costs $14.20 to rent each table, and each chair costs $1.45 (A to Z Party Rental, n.d., p. 1). So assuming 400 guests, 400 chairs would cost me $580.00 and since a table costs $1.29 per person it would cost me $516.00 ($1.45x400=$580. $14.20/11=$1.29 per person for a table. $1.29x400=$516) Table 2: Variable Costs Per person Cost $19.25 Food and Drink $110.00 Servers $1.45 Chairs Round Tables $1.29 Total Variable Costs Quantity Total Cost 400 $7,700.00 20 400 400 $2,200.00 $580.00 $516.00 10,996.00 3. A breakeven analysis is used “to determine the minimum sales volume a product must generate at a certain price level to cover all costs” (Boone, p. 415). Break even= fixed costs/(avg sale price per unit- avg variable cost). My fixed costs are $4,972 please see table 1 and table 2 at above for a detailed break down. My avg sale price per unit is the price I am charging for a ticket $59.99. The avg variable cost is $27.49 based on dividing my total variable costs $10,996 by the number of people attending, 400. So $10,996/400= $27.49. Please see table 2 for a detailed break down. Therefore, I need to sell 154 tickets to breakeven. 4,972.72/ (59.99-27.49)= 153.006→ 154 tickets to break-even. Since I need to sell 154 tickets, I need $9,238.46 in revenue to breakeven (154x$59.99= $9,238.46). 4. I would use the Bethesda Round House Theatre as the venue for my jazz party because it has a state of the art theater that seats up to 400 people (“Facility Use”, n.d., p. 1). It is also located 1 block from the Bethesda Metro Station, and there are 2 large parking garages within 1 block as well making it convenient for people all over the D.C. metro area to come. According to a study, higher education and income levels are strongly linked to those who listen to jazz; in fact, “nearly half of those attending jazz performances, for example, are college graduates; over three-quarters have had some college education. Those earning more than $50,000 a year are more than twice as likely to attend performances as those earning less than $25,000” (DeVeaux, 1995, p. 3) According to the U.S. Census Bureau, Bethesda has a population of 60,858 where 98.2% of people age 25 and older have a high school degree or higher compared to 88.7% in the state of Maryland (2015, p. 1). In addition, 82.4% of people age 25 and older in Bethesda have a bachelor’s degree or higher compared to 36.8% in the state of Maryland (U.S. Census Bureau, p. Anonymous 4 1). Also the per capita money income, also known as income per person, in Bethesda was $85,442 compared to $36,354 in the state of Maryland (U.S. Census Bureau, p. 1). Therefore because Bethesda is highly educated and has a greater income compared to the rest of Maryland, this makes the Bethesda Round House Theatre a great venue for my jazz party. 5. Regarding the potential sales (revenue) for this party, I am limited to selling 400 tickets because of the maximum capacity of the space I am renting. Therefore, my maximum revenue would be $23,996 (400x$59.99=$23,996) which would exceed my break-even point. Please see Table 3 below for more details. I believe selling 400 tickets is an attainable goal considering “About one-third of American adults reported that they ‘liked jazz.’ In addition, ‘25 percent of adult Americans expressed a desire to attend a jazz performance”’ (DeVeaux, 1995, p. 1). Using the Build Up Approach, which is estimating “the number of potential buyers in a geographic area,” (Weiser, 2015, slide #25) I would expect there to be 15,214 potential buyers in Bethesda for my jazz party given that Bethesda has a population of 60,858 and that “25% of adult Americans expressed a desire to attend a jazz performance” (DeVeaux, 1995, p. 1) (60,858x.25= 15,214) (U.S. Census Bureau, p. 1). Furthermore because the Bethesda Round House Theatre is located 1 block from the Metro, people all over the Washington region could come to my party. According to the Washington Post, the population of the Washington region is more than 5.8 million people (Mellnik & Morello, 2013, p. 1). Thus, I would estimate there to be 1.45 million potential buyers in the Washington region for my jazz party given that the population is more than 5.8 million and that “25% of adult Americans expressed a desire to attend a jazz performance” (DeVeaux, 1995, p. 1) (5.8 million x.25= 1.45 million). Table 3: Price Each Ticket Potential Sales 6. $59.99 Number of Tickets of Sold 400 Projected Revenue 23,996.00 Please see the income statement (Table 4) below. Table 4: Income Statement Revenue/Sales $23,996.00 Cost of Goods Sold (Total Variable Expenses) Operating Expenses (Total Fixed Costs) $10,996.00 Profit $8,027.28 $4,972.72 Anonymous 5 7. In sum, yes this jazz party should be thrown because the facility selected has an ideal location with convenient parking and is in very close proximity to a Metro station. In addition, the population of Bethesda is an ideal target market that has both a high income and is highly educated both of which are strongly correlated with people who listen to jazz. Ultimately, we should throw this jazz party because selling 400 tickets should be easy and with a profit of $8,027.28, it is a no brainer! References Bethesda Blues & Jazz Supper Club. (n.d.). Music Calendar. Retrieved June 17, 2015, from http://www.bethesdabluesjazz.com/events.cfm Bethesda Blues & Jazz Supper Club. (n.d.). Dining. Retrieved June 17, 2015, from http://www.bethesdabluesjazz.com/docs/2014_Dinner_Menu.pdf Blues Alley. (n.d.). Events. Retrieved June 17, 2015, from http://www.bluesalley.com/events.cfm Blues Alley. (n.d.). Menu. Retrieved June 17, 2015, from http://www.bluesalley.com/menu.cfm Bohemian Caverns. (n.d.). Tickets. Retrieved June 17, 2015, from http://www.bohemiancaverns.com/tickets/ Bohemian Caverns. (n.d.). Meny. Retrieved June 17, 2015, from http://www.bohemiancaverns.com/menu/ DeVeaux, S. (1995). Jazz in America: Who’s Listening? [PDF]. Retrieved from http://arts.gov/sites/default/files/NEA-Research-Report-31.pdf Gist Family Catering. (n.d.). Lunch & Dinner Menu. Retrieved June 17, 2015, from http://www.gistfamilycatering.com/ordereze/Pages/Menu.aspx?DeptID=4 Maryland DLLR. (2015, March). Minimum Wage and Overtime Law in Montgomery County [PDF]. Retrieved from http://www.dllr.state.md.us/labor/wages/minimumwagelawmont.pdf Mellnik, T., & Morello, C. (2013, March 14). D.C. Metro Area Population Growth Slows. The Washington Post. Retrieved June 19, 2015, from http://www.washingtonpost.com/local/dc-metro-area-population-growthslows/2013/03/13/145ffc66-8c09-11e2-9f54-f3fdd70acad2_story.html Montgomery County Police. (n.d.). Police Officer Requirements and Benefits. Retrieved June 17, 2015, from http://www.mymcpnews.com/jobs/police-officer-requirements-and-benefits-hidden/ Round House Theatre. (n.d.). Facility Use. Retrieved June 17, 2015, from http://www.roundhousetheatre.org/meetus/facility-use/ Sam Hill Entertainment. (n.d.). FAQ- How to Book or Hire a Band, How Much Bands Cost and Prices, etc. Retrieved June 17, 2015, from http://samhillbands.com/faq.shtm Staples. (n.d.). Casio SE-S700 Cash Register. Retrieved June 17, 2015, from http://www.staples.com/Casio-SES700-Cash-Register/product_311197 A Tasteful Affair. (n.d.). Catering FAQ's. Retrieved June 17, 2015, from http://www.atastefulaffair.com/resources/faqs.html A to Z Party Rental. (n.d.). Chair Rental. Retrieved June 17, 2015, from http://www.atozpartyrental.net/banquet_chair_rental.htm A to Z Party Rental. (n.d.). Table Rental. Retrieved June 17, 2015, from http://www.atozpartyrental.net/banquet_table_rental.htm U.S. Census Bureau. (2015, May 29). Quickfacts: Bethesda, CDP, Maryland. Retrieved June 19, 2015, from http://quickfacts.census.gov/qfd/states/24/2407125.html Weiser, H. (2015, June 16). Financial Statements and Analysis [Prezi]. Retrieved from https://prezi.com/qwfj0_v1i2i7/financial-statements-andanalysis/?utm_campaign=share&utm_medium=copy Name: Marketing Analysis Rubric Description: This rubric will be utilized in grading Marketing Analysis submissions Does not meet criteria Meets criteria Exceptional Addresses each of the 4Ps clearly: Product, Place, Promotion and Pricing using PICK Analysis Points: 30 (24%) Student does not complete 4P analysis, failing to address each of the 4Ps using PICK analysis. Points: 45 (36%) Student addresses some components of the 4Ps, but does not show a clear understanding of the distinctions between each element using PICK analysis. Points: 60 (48%) Student addresses all components of the 4P analysis demonstrating a clear understanding of the distinctions between each element and demonstrates a clear understanding of learning concepts from the course using PICK analysis. Product section addresses target market and Identifies specific top 3 competitors by name and differentiates business from each competitor identified Points: 5 (4%) Student does not address the target market for the product/service demonstrating an understanding of the specific market and demand for the product/service and fails to identify top 3 competitors by name, differentiating from each. Points: 15 (12%) Student addresses either the target market for the product/service demonstrating an understanding of the specific market and demand for the product/service or fails to identify top 3 competitors by name, differentiating from each, or does not demonstrate an understanding of the learning concepts. Points: 25 (20%) Student addresses the target market, the top 3 competitors, and differentiators effectively demonstrating a clear understanding demonstrates a clear understanding of learning concepts from the course. Paper free of grammatical errors/typos Points: 0 (0%) There are multiple typos, formatting, and/or grammar issues in paper. Points: 3 (2.4%) There are minor typos, formatting, and/or grammar issues in paper. Points: 5 (4%) There are not typos, formatting, nor grammar issues in paper. Paper is organized and has clarity Points: 0 (0%) Student presents information in a Points: 5 (4%) The paper is somewhat clear and concise, but Points: 10 (8%) The paper is clear and concise consistently Does not meet criteria Meets criteria Exceptional disorganized and unclear manner, making it difficult to interpret the information put forth. not consistently throughout the paper. throughout its entirety, and is well organized. Meets page requirements (2 full pages, no more than 3) using single spacing, 1”margins and 12 point font Points: 0 (0%) There are less than 2 single spaced substantive pages submitted. Points: 5 (4%) At least 2 and no more than 3 substantive pages submitted. However, pages lack substantive information sufficient to comprise the 2 page requirement (e.g., large pictures, graphs,spacing quotes take up too much space). Points: 10 (8%) At least 2 and no more than 3 substantive pages submitted. Uses research and data to support claims as necessary, which are cited with footnotes throughout Points: 0 (0%) Works cited are not included. (At least the textbook should be cited and at least one outside sources such as U.S. Census Bureau's site and competitor site information). Points: 10 (8%) Works cited are included but are not clearly noted in footnotes as required. Sources may be unreliable or fail to support the claims made. Points: 15 (12%) Works cited are included and are clearly noted using footnotes as required. Data is used consistently to support claims with reliable sources. Submitted timely via Blackboard in .doc or .docx format Points: 0 (0%) Not submitted in correct format. Points: 0 (0%) Per the syllabus, there may be up to a 20% grade reduction per day for late submissions. Points: 0 (0%) Submitted before required deadline and in proper format.