Reference no: EM131815734

Question: Bingo and Operating Leverage Many churches sponsor bingo games, a tradition stemming from the time when only specific nonprofit institutions were allowed to sponsor games of chance. Reverend Donovan Dukes, the pastor of a new parish in Orange County, is investigating the desirability of conducting weekly bingo nights. The parish has no hall, but a local hotel would be willing to commit its hall for a lump-sum rental of $950 per night. The rent would include cleaning, setting up and taking down the tables and chairs, and so on.

1. A local printer would provide bingo cards in return for free advertising. Local merchants would donate door prizes. The services of clerks, callers, security force, and others would be donated by volunteers. Admission would be $8.00 per person, entitling the player to one card; extra cards would be $.50 each. Many persons buy extra cards so there would be an average of five cards played per person. What is the maximum in total cash prizes that the church may award and still break even if 200 persons attend each weekly session?

2. Suppose the total cash prizes are $1,050. What will be the church's operating income if 50 persons attend? If 200 persons attend? If 350 persons attend? Briefly explain the effects of the cost behavior on income.

3. After operating for 10 months, Reverend Dukes is thinking of negotiating a different rental arrangement but keeping the prize money unchanged at $1,050. Suppose the rental arrangement is $700 per night plus $1 per person. Compute the operating income for attendance of 50, 200, and 350 persons, respectively. Explain why the results differ from those in requirement 2.