Question

A traveling production of Grease performs each year. The average show sells 1,500 tickets at $65 per ticket. There are 100 shows each year. The show has a cast of

35​, each earning an average of $340 per show. The cast is paid only after each show. The other variable expense is program printing costs of $6 per guest. Annual fixed expenses total $1,072,400.

1.	Compute revenue and variable expenses for each show.
2.	Use the income statement equation approach to compute the number of shows needed annually to break even.
3.	Use the shortcut unit contribution margin approach to compute the number of shows needed annually to earn a profit of $10,111,200 Is this goal​ realistic? Give your reason.
4.	PrepareGrease​'s contribution margin income statement for 100 shows each year. Report only two categories of​ expenses: variable and fixed.

Requirement 1. Compute revenue and variable expenses for each show.

The revenue for each show is $

.

The variable expenses for each show are $

.

Requirement 2. Use the income statement equation approach to compute the number of shows needed annually to break even.

Begin by determining the basic income statement equation.

-

-

=

Operating income

Using the basic income statement equation you determined​ above, solve for the number of shows to breakeven.

The number of shows needed annually to break even is

.

Requirement 3. Use the shortcut unit contribution margin approach to compute the number of shows needed annually to earn a profit of

$10,111,200 Is this goal​ realistic? Give your reason.

Begin by selecting the formula.

(

+

) /

=

Target # of shows

Using the equation you determined​ above, solve for the target number of shows.

The number of shows needed annually to earn a profit of $10,111,200 is

.

The profit goal of $10,111,200 is ▼ (unrealistic, realistic) since Grease currently performs 100 shows a year.

Requirement 4. Prepare Grease​'s contribution margin income statement for 100 shows each year. Report only two categories of​ expenses: variable and fixed.

Grease
Contribution Margin Income Statement
Year Ended December 31

Answer 1

Solution – 1:

Computation of revenue:

Number of tickets sold = 1500

Average price per ticket = $65

Total revenue for a show = 1500*$65 = $97,500

Computation of variable cost:

Payment to Cast (35 casts paid @$340 per show) = $11,900

Program printing cost (1500 * $6) = $9,000

Total Variable cost = $11,900 + $9,000 = $20,900

Solution- 2:

Annual Fixed Expenses = $1,072,400

Contribution margin (per show) = Sales Price – Variable cost

= $97,500 - $20,900

= $76,600

Number of shows required to reach at break-even= Fixed Expenses / Contribution per show

= $1,072,400 / $76,600

= 14

Hence 14 shows are required in a year to reach at break-even point.

Solution 3:

Annual Fixed Expenses = $1,072,400

Profits required = $10,111,200

Contribution margin per show = $76,600

Number of shows required to earn desired profit = (Fixed Cost + Desired profit) / Contribution per show

= ($1,072,400 + $10,111,200) / $76,600

= 146

Hence 146 shows are required in a year to earn profit of $10,111,200. Looking at current number of 100 shows in n year, this goal does not seem realistic for short term. An increase of 46% in number of shows require Travelling Production to re-look at its schedule, strategy and resources and see if it is possible.

Solution 4: