Madrigal Theater Company is interested in estimating fixed and variable costs. T

Question

Madrigal Theater Company is interested in estimating fixed and variable costs. The following data are available:

Use the high-low method to estimate fixed cost per month and variable costs per ticket sold [i.e., estimate a and b in the equation Cost = a + (b × # of tickets) using the high-low method]. (Round variable cost per ticket to 2 decimal places, e.g. 15.25 and other answer to 0 decimal places, e.g. 125.)

Madrigal Theater Company is considering an advertising campaign that is expected to increase annual sales by 15,000 tickets. Assume that the ticket selling price is $25. Ignoring the cost of the advertising campaign, what is the expected increase in profit associated with the advertising campaign?

Increase in profit: $_____

Month Cost No. of Tickets Sold January $160,000 19,000 February 190,000 22,000 March 215,000 28,000 April 217,000 29,000 May 209,500 29,500 June 194,500 24,500 July 240,000 35,000 August 172,000 20,000 September 185,000 22,000 October 202,000 26,000 November 191,500 23,500 December 207,000 30,000

Explanation / Answer

Variable cost per ticket sold = Change in cost/Change in ticket sold

= (240000-160000)/(35000-19000)

Variable cost per ticket sold = $5 per ticket sold

Fixed cost = 240000-(35000*5) = $65000

Cost = $65000+ $5*# of tickets sold

2) Increase in profit = (25-5)*15000 = $300000

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