It is early January and the CEO (Brie Anderssen) and the new Financial Director (Hans Poulsen) of a small amateur basketball team, Basketball Club Odense (BCO), are discussing its annual fundraising event (a dinner and dance) due to take place in March. This is very important fundraising dinner and dance for BCO, as in these difficult economic times money is in short supply! Last year's event was a disaster because the number of tickets sold was insufficient to cover the costs of the event and the club lost a lot of money. This year the CEO is determined that this will not happen again. The previous Financial Director has since left and been replaced by Hans Poulsen. "Have you properly researched the costs for this year's event Hans," asks Brie. Hans, sounding confident, replies: "I believe that I have." "Well then let me have your breakdown," says Brie. Hans begins: "I have negotiated a deal with the Strujam Hotel in Odense to hire a room for the event at a cost of DKK35,000. This includes the cost of the hotel staff but excludes the cost of our staff that will have to attend to help. I estimate that we would require to pay overtime of DKK515 to each of the 12 staff required for the evening." "What about food and drink?" enquires Brie. Hans continues: "On arrival guest will be served one glass of organic lemonade and canaps to eat at a cost of DKK44 for the organic lemonade and DKK36 for the canaps. The main dinner will be provided at a cost of DKK250 per guest and each table will be provided with soft drinks to the value of DKK76 per guest. Tea and coffee will be provided at the end of the evening for guests at a cost of DKK30." Brie interrupts: "To be clear, each of these costs will be charged by the hotel for each guest that attends?" "That is right," says Hans. "We will tell the hotel how many tickets we have sold and they will provide the food and drink to match the number of tickets sold. By the way, how much were you thinking of charging for the tickets?" "Given the loss last year, I would suggest a price per ticket of DKK800 might be required this year," replies Brie. "There are of course other costs," says Hans. "It will cost DKK26,500 for advertising the event in various media and DKK14,400 to decorate the venue with our promotional material and team colours." "What about entertainment for the evening?" asks Brie. "I have thought about that," Hans says, sounding pleased with himself. "I thought we could have a top table of 8 invited guests. 4 ex-players and their partners I thought that would be ideal as they can mingle with the guests and tell them of our past glories on the basketball court! I think we should offer the ex-players and their partners accommodation for the night at the hotel, plus food and drink, which would cost in total DKK1,150 for each of the 8 invited guests. I also think we should hire Sophie Karlssen, the brilliant after-dinner speaker. She costs DKK4,750 per evening plus her transport to and from the evening (a taxi would cost DKK640 for the two journeys)." 6 "This is already sounding much better than last year," exclaims Brie. Excellent! What about a music band for the dancing?" "Two of my friends are in DiscoDivas a popular local band", says Hans, "and they say their band would perform at the event for a reduced fee of DKK7,800." "You seem to have thought of everything," Brie says. But she suddenly remembers that based on previous years, all guests expect a souvenir of the evening, usually a mini- basketball in the club colours. "I think you should include a cost of DKK27 per guest for a souvenir of the evening." "Will do," says Hans. "What next?" Based on the costs discussed just now, I would like you to calculate how many tickets we will need to sell in order to breakeven. We simply cannot afford to run this event at a loss again," says Brie. She continues, "Can you work out how many tickets we would need to sell to breakeven if the price was DKK800 as I am suggesting. It would be great if we could actually make some profit from this event, so could you also calculate the number of tickets we would need to sell at that ticket price to make a profit of DKK80,000. Hopefully you can put into practice what you learned doing your MBA!" Hans smiled. "I will get started then." "One more thing - unrelated to this event," interrupts Brie. "I read somewhere recently about a thing called target costing and it seemed ideal to apply to our new replica club mascots we intend selling at Christmas. As you know the price cannot be more than DKK50 per mascot in this poor economic climate. We need to make a margin of 30% on all of our merchandise to cover the costs of our retail shop. The mascot currently costs DKK39 from our supplier in Sweden." Required: 1. Calculate the number of tickets that require to be sold at DKK800 for the event to breakeven. Show all workings. (16 marks) 2. Calculate the number of tickets that require to be sold at DKK800 for the event to make a net profit of DKK80,000. Show all workings. (2 marks) 3. Provide a brief explanation of target costing and how BCO might apply it to the replica club mascot