Question

Amazing Productions performs London shows. The average show sells 1,000 tickets at $60 per ticket. There are 120 shows per year. No additional shows can be held as the theater is also used by other production companies. The average show has a cast of 60, each earning a net average of $320 per show. The cast is paid after each show. The other variable cost is program-printing cost of $8 per guest. Annual fixed costs total $459,200.

1)Compute revenue and variable costs for each show.

2)Use the equation approach to compute the number of shows Amazing Productions must perform each year to break even.

3)Use the contribution margin ratio approach to compute the number of shows needed each year to earn a profit of $4,264,000. Is this profit goal realistic? Give your reasoning.

4)Prepare Amazing Production's contribution margin income statement for 120 shows performed in 2016. Report only two categories of costs: variable and fixed.

Answer 1

Answer to Q1:

Revenue Per Show: Tickets * Price per ticket

= 1000*60 ; $60,000

Variable Cost per Show: Number of Cast * Average Earning

= 60*$320 ; $19,200

Other Variable Cost per show: Number of Tickets * Printing per ticket

= 1000*$8 ; $8,000

Total Variable Cost Per show : $19,200+$8,000 = $27,000

Answer to Q2

Number of show per year to Break even = Fixed Cost / Contribution margin per show

= $459,200/($60,000-$27,000)

= 14 Shows Round off

Answer to Q3

Number of show per year to make profit as given = (Fixed Cost+Profit) / Contribution margin per show

= ($459,200+$4,264,000)/($60,000-$27,000)

= 143 Shows Round off

Profit Goal is not resonable as the maximum number of show company in a year can run is 120 due to occupancy of production house by other company and to achieve the given target profit company had to run minimum of 143 shows which is not possible.

Answer to Q4.

Amazing Production's contribution margin income statement

Net Sales :	Revenue Per show * number of shows	$7,200,000
Variable Cost	Variable cost per show * number of showa	$3,240,000
Contribution MArgin	Net Sales - Variable Cost	$3,960,000
Fixed Cost		$459,200
Operating income	Contribution Margin - Fixed Cost	$3,500,800

Sales: $60,000*120 = $7,200,000

Variable Cost : $27,000*120 = $3,240,000