Page 127 - DMGT304_EVENT_MANAGEMENT

Event Management

Notes Graphical Method
Figure 5.1: Graphical Method

l Income A

Costs C

P
Variable

Break-Even Costs

Point

B
Loss Profit
Fixed
Costs
Q
O

Output

On the horizontal axis of the graph (see Figure 5.1), the volume of production or sales is measured
and on the vertical axis, the value of cost and sales is measured. The fixed cost line is drawn at
Band is parallel to the x-axis of the graph because it does not change due to changes in level of
sales. The total cost line BC is drawn after adding variable cost to the fixed cost. The point P is the
point of intersection of the income and costs and is known as break-even point.

5.5.4 Margin of Safety

Margin of safety represents the strength of the business. It enables a business to know the exact
amount it has gained or lost, and whether it is over or below the break-even point.
Margin of safety = (Current output – Break-even output)
Margin of safety% = (Current output – Break-even output)/Current output × 100

5.5.5 Applications in Event Management Industry

Break-even analysis is used mostly in the manufacturing industry but its applicability in the
service industry cannot be understated. However, there is one fundamental difference between
goods and services—services cannot be placed in inventory for later sale. The case may be that
the variable cost in manufacturing may be fixed cost in services. For instance, in the restaurant
industry, unknown demand requires cooks and table-service personnel to be on duty, even
when there are few customers. If a barber shop is open, at least one barber must be present.
Emergency rooms require round-the-clock staffing. The absence of sufficient service personnel
frustrates the customer, who may not be happy at his visit to the service firm and may seek
competitors to fulfil his needs. Even in the event management industry, the preparations are
made around the clock in the anticipation that the customers/spectators will come to watch the
event. Managers cannot predict the success or failure before the event is launched.
The wages for the basic level of personnel must be counted as fixed costs, as they are necessary
for the potential production of services, despite the actual demand. However, the wages for on-
call workers might be better classified as variable costs, as these wages will vary with units of

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