Question

A traveling production of

Wicked

performs each year. The average show sells

1,400

tickets at

$55

per ticket. There are

125

shows each year. The show has a cast of

45​,

each earning an average of

$310

per show. The cast is paid only after each show. The other variable expense is program printing costs of

$8

per guest. Annual fixed expenses total

$829,600.

Read the requirements

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 $6,533,100 Is this goal​ realistic? Give your reason.
4.	Prepare WickedWicked​'s contribution margin income statement for 125 shows each year. Report only two categories of​ expenses: variable and fixed.

.

Answer 1

Answer :

(1). Compute the revenue for show

Revenue for show = Average selling of tickets * Ticket price

= 1,400 Tickets * $55 per Ticket

= $77,000

Hence, Revenue per show is $77,000

Compute the variable expenses per show

Variable expenses per show = Programmes guest + Cast members

= 1,400 guest * $8 per guest + 45 cast member * $310 per cast member

= $11,200 + $13,950

= $25,150

Hence, the variable expenses per show are $25,150

(2). Compute the break even number of shows

Operating income = Sales revenue - Variable expenses - Fixed expenses

Operating income = (Revenue _{per show} * Number per show) - (variable expenses _{per show} * Number for show) - Fixed expenses

$0 = ($77,000 * Number show) - ($25,150 * Number per show) - $829,600

$0 + $829,600 = ($77,000 - $25,150) * Number of shows

$829,600 = $51,850 * Number of shows

Number of shows = $829,600 / $51,850

Number of shows = 16

Thus, the break even number of shows is 16

(3). Calculate the number of shows needed annually

Firstly calculate the target number of shows

Target number of shows = Fixed expenses + Target operating income / Contribution margin per unit

= $829,600 + $6,533,100 / 51,850

= $7,362,700 /$51,850

= 142 Shows

Therefore the target number of shows is 142

Working Note :

Compute the contribution margin :

Contribution margin = Revenue - Variable expenses

= $77,000 - $25,150

= $51,850

Thus, the contribution margin is $51,850

(4).

Wicked's Contribution margin income statement For the year ended December 31
	Particulars (A)	Amount (B)
1	Sales revenue	= 77000 *125
2	Variable expenses	= 25150 *125
3	Contribution margin	= B1 - B2
4	Fixed expenses	829600
5	Operating income (Loss)	= B3 - B4

Wicked's Contribution margin income statement For the year ended December 31
	Particulars (A)	Amount (B)
1	Sales revenue	$9,625,000
2	Variable expenses	$3,143,750
3	Contribution margin	$6,481,250
4	Fixed expenses	$829600
5	Operating income (Loss)	$5,651,650

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