Question

Sophie Bradford is the manager of Anthem's traditional Sunday​ Flicks, sponsored by the Anthem Student Association. The admission price is deliberately set at a very low $ 3.5. Each​ Sunday, a film has two showings and a maximum of 1,600 tickets can be sold for each showing. The rental of the auditorium is $ 280 and labor is $455​,including $120 for Bradford.Bradford must pay the film distributor a​ guarantee, ranging from $ 270 to $ 800, or 40% of gross admission​ receipts, whichever is higher. Before and during the​ show, she sells​ refreshments; these sales average 10% of gross admission receipts and yield a contribution margin of 50 %.

Requirement 1: On June 3, Bradford screened The Descendants. The film grossed $10,500. The guarantee to the distributor was $700 or 40% of gross admission receipts, whichever is larger. What operating income was produced for the student association.

Requirement 2: Recompute the results if the film grossed $1,400

Requirement 3: The​ "four-wall" concept is increasingly being adopted by movie producers. In this​ plan, the​ movie's producer pays a guaranteed fixed rental to the theater owner​ for, say, a​ week's showing of a movie and the producer receives the ticket receipts less the fixed rental. As a theater​ owner, how would you evaluate a​ "four-wall" offer?

Answer 1

1.

		Film	Refreshments	Total
Revenues from admission		$          10,500	$           1,050	$           11,550
Variable Costs		$            4,200	$              525	$             4,725
Contribution Margin		$            6,300	$              525	$             6,825
Fixed costs
Auditorium Rental	$               280
Labor	$               455			$                 735
Operating Income				$             6,090

2.

		Film	Refreshments	Total
Revenues from admission		$            1,400	$              140	$             1,540
Variable Costs		$               700	$                70	$                 770
Contribution Margin		$               700	$                70	$                 770
Fixed costs
Auditorium Rental	$               280
Labor	$               455			$                 735
Operating Income				$                   35

3.
The four-wall offer should be accepted only, if estimated operating income from the offer is higher than income from normal sales, then only offer should be accepted.