Question

The local authority of a small town maintains a theatre and arts centre for the use of a local reprtory company, other visiting groups and exhibitions. Management decisions are taken by a committee which meets regularly to review the accounts and plan the use of the facilities.The theatre employs a full-time staff and a number of artists at costs of $4,800 and $17,600 per month repsectively. The mount a new production every month for 20 performances. Other monthly expenditure of the theatre is as follows:

	Costumes					2,800.00
	Scenery					1,650.00
	Heat and light					5,150.00
	Apportionmet of administration costs of local authority					8,000.00
	Casual staff					1,760.00
	Refreshments					1,180.00

On average the theatre is half full for the performances of the repertory company. The capacity and seat prices in the theatre are:

	200 seats at $6 each
	500 seats at $4 each
	300 seats at $3 each
In addition, the theatre sells refreshments during the performances for $3,880 per month.
Programme sales cover their costs but advertising in the programme generates $3,360.
The management committee has received proposals from a popular touring group to take over the theatre for one month (25 performances). The group is prepared to pay half of their ticket income for the booking. They expect to fill the theatre for 10 nights and achieve two-thirds full on the remaining 15 nights. The prices charged are 50 cents less than those normally applied in the theatre.The local authority will payfor heat and light costs and will still honour the contracts of all artists and pay full-time employees who will sell refreshments and programmes, etc. The committee does not expect any change in the level of refreshments or programme sales if they agree to this booking. Note: The committee includes allocated costs when making profit calculations. They assume occupancy applies equally across all seat prices. On financial grounds should the management committee agree to the approach from the touring group? Provide all possible working to support your answer

Answer 1

Exisitng Scheme
New production every month	20 Performances
Full Staff	4,800	pm
Artists Cost	17,600	pm
Other Monthly Exp
Costumes	2,800
Scenery	1,650
Heat and light	5,150
Apportionmet of administration costs of local authority	8,000
Casual staff	1,760
Refreshments	1,180
Total Expenses	42940
Calculation Of Income of the Theatre (Half full)
(200/2)*6	600
(500/2)*4	1000
(300/2)*3	450
Per Performance	2050
For 20 performances(4100*20)                 (i)	41000
Sales of Refreshments                                 (ii)	3880
Advertisements                                              (iii)	3360
Total current Income            IV (i+ii+iii)	48240
Total Expenses                        V	42940
Net Income              IV-V	5300

New Proposal
Total Performances	25
Ticket Income agreed to be paid
		Price charged
Booking Expected
200 seats for 10 nights (full capp)	2000	5.5
200 seats for 15 nights (2/3rd cap)	2000	5.5
Total seats for 25 performances	4000
total income	22000
Total seats for 25 performances 500	10000
Total Income	35000
Total seats for 25 performances 300	6000
Total Income	15000
Net total income to touring comp	72000
Paid to Management	36000
Sales of refreshment and advertising	7240
Expenses
Heat and light	5150
Fulll time and artists costs	22400
Alocated costs	8000
Net income to the committee	7690
As compared to the previous proposal the local authority will be benifitted by 2390 $ when accepts new proposal.