Question

In: Accounting

XYZ operates a movie theater. A movie ticket is $16.00 per ticket, and costs nothing

 

XYZ operates a movie theater. A movie ticket is $16.00 per ticket, and costs nothing. On average 40% of the customers will buy a soda ($6 each, cost $1); 60% will buy food ($6 average price with a cost of $2). The fixed costs are $387,600.

  1. Calculate the break-even quantity and $sales for tickets, soda and food(10 points)  
  2. The theater wishes to make $96,900 profit. Calculate the target profit quantity and sales for tickets, soda and popcorn (10 points)

Make sure to show your weighted average calculations, "bundle" calculations, and final answers.

Solutions

Expert Solution

Quest: XYZ operates a movie theater. A movie ticket is $16.00 per ticket, and costs nothing. On average 40% of the customers will buy a soda ($6 each, cost $1); 60% will buy food ($6 average price with a cost of $2). The fixed costs are $387,600.

  1. Calculate the break-even quantity and $sales for tickets, soda and food(10 points)  
  2. The theater wishes to make $96,900 profit. Calculate the target profit quantity and sales for tickets, soda and popcorn (10 points)

Make sure to show your weighted average calculations, "bundle" calculations, and final answers.

Solution:

Contribution Margin= Sales- Variable costs

Particulars Sales variable cost Contribution Margin Sales Mix Weighted Average Contribution(Contribution Margin*sales mix)
Tickets 16 0 16 1 16
soda 6 1 5 0.40 2
Food 6 2 4 0.60 2.40
Total 20.40

Break-even Sales Units= Fixed costs/ contribution Margin

=> 387,600/20.40

=> 19,000 Units

Break-even point (in dollars)= Break even sales*sales price*sales mix{for each type}

19,000*{16*1+6*0.40+6*0.60}

= 19,000*{16+2.40+3.60}

=>19000* 22

=> 418,000

2. target profits in case of 96,900 Profits

=> profit+fixed costs/Weighted average contribution

=> 96,900+387,600/20.40

=> 484,500/20.40

=> 23,750

units for tickets= 1/2*23,750

=> 11,875

Units for soda= 0.40/2.00*23,750

=> 4,750

Units for food= 0.60/2*23,750

=> 7,125


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