Question

ABC Theater runs multiple shows each month. Each of the 5 theaters has 100 seats. The selling price for each ticket is $10, no matter which show or time of day. Adults, Seniors and Children admissions are all $10 each.

Given the following financial data:

• ABC Theaters pays $8,000 rent for the theater equipment each month
• ABC Theaters owns the building and records depreciation of $1,500 each month
• The management has determined that there is a variable cost of $2 per admission that accounts for maintenance and supplies.
• The movie house managers salary is $36,000 per year or $3,000 per month. The manager also receives a $1 bonus for each paid admission to the theater
• Finally, the ABC Theaters wants to achieve a $10,000 profit at the end of each month.

* Compute the number of ticket admissions required to be sold each month to achieve break even, including the profit goal of $10,000 each month.

* If ABC Theater had an exceptional month and sold 4,000 tickets at their normal price, how much extra profit would they earn beyond their monthly goal of $10,000; assuming the same data as above?

Answer 1

we will first find variable and fixed cost

variable expense changes with change in numbe rof tickets

fixed costs remains same at all the levels of tickets sold.

Variable Cost
Maintenance and supplies	$2
Manager bonus	$1
Total variable costs	$3
Fixed costs
Rent	$8,000
depreciation	$1,500
Manager's salary	$3,000
Total fixed costs	$12,500

contribution margin = sales per unit-variable cost per unit

=$10-$3

=$7

Break even sales = [Targeted profit+fixed cost]/contribution margin per ticket

=[$10,000+$12,500]/$7

=$22,500/7

=3,214 tickets (round off to nearest dollar)

2) If 4,000 tickets are sold

Profit= break even sales-actual sales * contribution margin per ticket

=[4,000-3,214]*$7

=$5,500

So, $5,500 extra profit would they earn beyond their monthly goal of $10,000;

Check

sales	$40,000	[4,000*$10]
less variable cost:	$12,000	[$3*4,000]
Contribution margin	$28,000
Less: fixed costs	$12,500
profit	$15,500
Less current profit	$10,000
Additional profit	$5,500 [$15,500-$10,000]