Fixed versus variable cost behavior
Harrell Entertainment sponsors rock concerts. The company is considering a contract to hire a band at a cost of $75,000 per concert.
Required
1. What are the total band cost and the cost per person if concert attendance is 2,000, 2,500, 3,000, 3,500, or 4,000?
2. Is the cost of hiring the band a fixed or a variable cost?
3. Draw a graph and plot total cost and cost per unit if attendance is 2,000, 2,500, 3,000, 3,500, or 4,000.
4. Identify Harrell's major business risks and explain how they can be minimized.