Green Productions performs London shows. The average show sells 1,300 tickets at

Question

Green Productions performs London shows. The average show sells 1,300 tickets at $60 per ticket. There are 175 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 65, each earning a net average of $340 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 $728,000. Requirements 1.Compute revenue and variable costs for each show. 2.Use the equation approach to compute the number of shows Green 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 5,687,500. Is this profit goal realistic? Give your reasoning. 4.Prepare Green Production's contribution margin income statement for 175 shows performed in 2016. Report only two categories of costs: variable and fixed.

Explanation / Answer

1). Revenue per show = 1300 tickets * $60 per ticket = $78,000
Variable cost per show :-
Payment to cast = 65 * $340 = $22,100
Printing cost = 1300 * $8 = $10,400
Total variable cost = $32,500

2). Contribution per show = Revenue - Variable cost
= 78000 - 32500 = $45,500
Breakeven point is where Contribution is equal to fixed cost or net profit is zero.
Breakeven point = Fixed cost / Contribution per show
= $728000 / $45500 = 16 means 16 shows must be done in a year in order to breakeven.

3). Contribution margin ratio = Contribution / Revenue = $45500 / 78000 = 58.33%
Revenue to earn profit of $5,687,500
Revenue = Fixed cost + Profit / Contribution margin ratio
= (728000 + 5687500) / 58.33%
= $10,998,628.5
No. of shows = $10,998,628.5 / $78000 = 141 shows approx.

4). Income Statement:-
Revenue                       $13,650,000   (78000 * 175)
Less: Variable Cost :
         Payment to cast   $3,867,500    (340*65*175)
         Printing cost        $1,820,000     (1300*8*175)
Contribution                  $7,962,500
Less: Fixed Cost           $728,000
Net Income                   $7,234,500

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.