A local movie theater owner explains to you that ticket sales on weekends and ev

Question

A local movie theater owner explains to you that ticket sales on weekends and evenings are strong, but attendance during the weekdays, Monday through Thursday, is poor. The owner proposes to offer a contract to the local grade school to show educational materials at the theater for a set charge per student during school hours. The owner asks your help to prepare a CVP analysis listing the cost and sales projections for the proposal. The owner must propose to the school's administration a charge per child. At a minimum, the charge per child needs to be sufficient for the theater to break even. Required Your team is to prepare two separate lists of questions that enable you to complete a reliable CVP analysis of this situation. One list is to be answered by the school's administration, the other by the owner of the movie theater.

Explanation / Answer

CVP analysis is cost volume profit analysis and it is a form of cost accounting.The components of CVP analysis are selling price per unit, level of activity , variable cost per unit and fixed cost.

In the present problem tickets are sold of movie theatre on weekends and evenings are strong but attendance during the weekdays, Monday through Thursday, is poor. The owner proposes to offer a contract to the local grade school to show educational materials at the theater for a set charge per student during school hours. The owner asks your help to prepare a CVP analysis listing the cost and sales projections for the proposal.

In this proposal, owner want atleast there should be break even point.

At break even point, there is no profit or no loss.So contribution is equivalent to fixed cost.In other words we can say that break even point is fixed cost.

We have to ask several following questions from school owner or administrative-:

·        How many students can come to attend educational event at theatre.

·        What are the timings of student to attend such events?

·        How many students can attend such events in weekdays and weekens?

·        How much profit you require from each student?

·        How much batches are required for such event?

·        Is any facility has to be provided to each student?

Several following questions have to be asked from owner of theatre-:

·        How much minimum ticket required from each student?

·        What are the availability of timings at theatre?

·        How much students can attend at one time?

·        Can you provide food facility to our students?If yes what is their price?

·        Only weekdays are available or weekens are also available

The owner must propose to the school's administration a charge per child. At a minimum, the charge per child needs to be sufficient for the theater to break even. Required Your team is to prepare two separate lists of questions that enable you to complete a reliable CVP analysis of this situation. One list is to be answered by the school's administration, the other by the owner of the movie theater.

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