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The budget allocated for an event states that for each invitee it is maximum $40 and intends to invite 200 people and communicates the information to a Club. The club organizing the event calculated its costs for the event. Food and beverage costs is $10 per person. Entertainment for the party is $1000. Direct labour for the event is $500. Share of fixed overhead is $5 per person. Other direct variable costs $2. What is the marginal costing for the event? Do we have to account for direct labour cost and entertainment cost when deciding whether to stage the event when comparing with the budgeted $40? and as these entertainment costs and labour costs vary for each event which the club organizes, and their real fixed cost is only rent of the event hall.
Yes, you would need to account for the entertainment and the labour for the event – they are marginal costs of staging the event.
You would not account for the fixed overhead because the total fixed cost would not change.
There is no mention in the question of renting a hall, but if a hall was rented specifically for the event, then the cost of this would be taken into account as well.This is more of a relevant costing question (and relevant costing is no longer examinable in F2 – more at F5 and F9).
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