Friends is a charitable organization that sponsors group activities and provides adult companionship for troubled youths from single-parent families. Friends screens, trains, motivates, and supervises the adult volunteers, who are paired with children referred by local agencies and by parents concerned with their children's future. The organization provides a service that can augment any professional help a child may be receiving. But its main role is one of prevention by providing a meaningful adult relationship for a child before the child becomes a severe parental or societal problem. Friends is a nationwide organization that began in 1911 in Cincinnati, Ohio, and there are over 200 local agencies through-out the country with the parent office, Friends Central, in New York. Friends Central provides support in establishing and administering local programs, but each agency is responsible for raising its own funding.
The Culver City branch in Forsyth County, Virginia, was started only six months ago and has an operating budget for the current year of $60,000. The budget is modest by most standards but will be hard to achieve given the newness of the organization and the nationwide recession that has hit Culver City especially hard. About 30 percent of the necessary funds will come from the United Appeal, and the remainder from a government grant, some fundraising events, and donations.
THE IMPORTANCE OF THE DANCE
The final event planned is a dance that the organization hopes will raise $8,000, which is the projected yearly deficit. Although eliminating the shortfall is an important objective, there are other reasons why the dance needs to be successful.
The Forsyth County United Appeal has made it clear that it wants local agencies to establish their own fundraising events. There even is talk that the United Appeal will implement a financing scheme in which it matches every dollar in profit generated by an organization. Friends Central also encourages its local agencies to develop their own fiscal base. A number of studies have found that agencies that relv heavily on outside monies tend to stagnate, in part due to the restrictions that often accompany such monies. Nationwide, United Appeal has been known to over-see quite strictly the running of organizations that it funds heavily. It is precisely this type of rigidity that Friends Central wants to avoid by encouraging local units to raise a large proportion of their budget on their own. And although the Forsyth County United Appeal has in the past adopted a policy of minimum inter-vention, one can never be sure when this philosophy might change. Finally, a successful event would raise the status of Culver City's Friends organization. Friends Central would raise the agency's classification from an agency-in-formation to a provisional agency, which would enable more children to be served.
Tickets for the dance will be sold at $50 per couple, and the sale of drinks should net $10 per couple. The dance will be held at the Mountain Lodge, which has a ballroom seating 300 couples. Bob Lyttle, a manager at the lodge and a member of Friends board of directors, has arranged for the owners to donate the ballroom. Hors d'oeuvres will be provided at a cost to Friends of $5.00 per couple, and $500 will cover labor and miscellaneous expenses. The only other expense is the cost of the band, whose selection is generating some controversy among the dance organizers. The choice is between the Flames and the Charms.
Both play the same type of music, a mixture of old-time rock and roll and beach music. The Flames, however, will cost $6,000, the Charms only $3,000.
SOME ARGUMENTS FOR EACH BAND
Supporters of the Flames believe that this band will increase ticket sales, and they cite the band's 15 years' experience and recognition among the 30-45-year age group, the target population of the dance. These individuals also believe that a long view is appropriate. "We can't just look at one year," they argue,
"but we also have to consider the impact of our decision on future dances. The Flames will set the tone for the event and increase its future popularity. This is especially relevant if the United Appeal implements its matching scheme on any money raised by a charity from an event such as the dance." Finally, they point out that if the Flames were selected it would be a "big deal" for Culver City and the dance would receive more publicity, thus benefiting the Friends organization. They cite this as an intangible factor that should not be ignored.
Supporters of the Charms agree that the Flames are the better band but question whether the Flames will generate enough extra sales to make up for the increased cost. Both sides feel 200 tickets will likely be sold even if the Charms are selected, but there is some concern that the dance tickets will not sell as well as expected. "After all," says Bill Frady, an accountant by profession, "there is a recession out there. The $50 ticket price may be a bit steep for this town, especially in view of the economy. Let's be realistic and admit we may not be able to sell 200 tickets. The Flames increase the overhead and Friends can't afford to take a loss on this dance. Eliminating the deficit has to be our number one priority.
There is just no slack in our budget, and any shortfall may well have to come out of the salaries of the staff, which would not only be unfair but would also be bad business. In short, we simply do not have the luxury to worry about the future.
Let's get by this year and then concern ourselves with future dances."
Supporters of the Charms do admit that any additional publicity from using the Flames would benefit Friends. They are not convinced, however, that the Flames would be best for the organization in the long run. Lyttle points out that two local philanthropists "have their eye on our agency." He believes that these individuals would "bail us out" in the event of a shortfall. "But," he cautions,
"they would be much less likely to support us in the future." Lyttle is convinced that if Friends can stand on its own this year, these philanthropists will be generous in coming years since "they admire agencies that try to be self-supporting."
He agrees with Frady that the Charms make more sense, though
he believes that Frady is too pessimistic about ticket sales. He wonders, how-ever, whether the price should be lowered to $40 per couple. "Perhaps," he
speculates, "we can more than gain on volume what we would eta on the
After much discussion all agree it is highly probable that 200 tickets can be sold even if the Charms are used and that 150 is the absolute lower limit. It is also estimated that lowering the price to $40 will increase sales by 20 to 40 tickets.

QUESTIONS

Evaluate the proposal to lower the price of a ticket to $40. What implications, if any, does it have for the band choice?
Based on your previous answers and other information provided in the case, which band would you pick? Why?

The break-even and profit formulas you used are based on certain assumptions. What are they? Are they likely to hold for this situation? Explain.