Question

P7-68B A traveling production of Grease performs each year. The average show sells 1,400 tickets at $50 per ticket. There are 100 shows a year. The show has a cast of 40, each earning an average of $340 per show. The cast is paid only after each show. The other variable expense is program printing expenses of $8 per guest. Annual fixed expenses total $1,582,000. Requirements 1. Compute revenue and variable expenses for each show. 2. Compute the number of shows needed to annually to break even. 3. Compute the number of shows needed to annually to earn a profit of $4,836,400. Is this goal realistic? Give your reason. 4. Prepare Grease’s contribution margin income statement for 100 shows each year. Report only two categories of expenses: variable and fixed.

Answer 1

Requirement 1

Revenue and variable expenses for each show:

Sales Revenue per show = 1400*$50 per ticket =$70000

Variable expenses= Cost of performers + Cost of programs

= 40 performers*$340 per performer + 1400 guests *$8 per guest

= $13600+$11200

= $24800

Requirement 2: Number of shows needed to annually to break even.

Break even shows = Fixed cost/ Contribution Margin

Contribution Margin = Sales revenue - Variable costs = $70000-$24800 = $45200

Given Fixed costs = $1582000

Break even shows = $1582000/$45200

Break even shows = 35 shows

Requirement 3: Number of shows needed to annually to earn a profit of $4,836,400

Required sales in Dollars = Fixed cost + Targeted profit / Contribution Margin ratio

Contribution marginRequired sales in Dollars ratio = Contribution margin/sales*100 = $45200/$70000*100 = 64.57%

Required sales in Dollars = $1582000+$4836400/64.57%

Required sales in Dollars = $9940220

Required sales in Units = Required sales in Dollars/Sales price per show

Required sales in Units = $9940220/70000 per show = 142 shows

Since 142 shows is more than the 100 maximum shows,the profit goal of $4836400 is not realisitc.

Requirement 4 : Grease’s contribution margin income statement

Grease’s contribution margin income statement

For the year ended December 31,20XX

Sales Revenue($70000*100 shows) $7000000 Variable costs ($24800*100 shows) $2480000 Contribution Margin $4520000 Fixed Cost $1582000 Operating Income $2938000