Arena seats 5,000 seats $11 per ticket per game Variable costs for printing etc.

Question

Arena seats 5,000 seats

$11 per ticket per game

Variable costs for printing etc. are $1 per ticket.

Fixed costs include player’s salaries and operating expenses = $1.2 million per season.

What are the Expected Total Sales in dollars and units (tickets)?

What are the total sales if all tickets every season was sold?

What is the projected net income as its planned sales level?

What is the team breakeven point in terms of total tickets sold?

How many tickets per game on average does the team need to sell to break even?

Compute the team’s safety margin in sales dollars and units (tickets).

One season, 40 games,

Explanation / Answer

1. the expected total sales in dollars and units (tickets) = (5000*40*2) * $11 = $4.4m 2. the total sales if all tickets every season was sold = (5000*40) * $11 = $2.2m 3. the projected net income as its planned sales level per season = season revenue - season costs = $2.2m - (5000*40*$1) + $1.2m = $0.8m 4. the team breakeven point in terms of total tickets sold = Fixed cost / contribution per ticket = ($1.2m*2)/($11 - $1) = $2.4 / $10 = 0.24m tickets 5. tickets per game on average to break even = FC per game /contribution per ticket = ($1.2m/40) / ($11-$1)=- $30000 / $10 = 3000 tickets per game 6. Teams margin of safety in units = total tickets sold - break even tickets = (5000-3000)* 40*2= 0.16m tickets all seasons Teams margin of safety in dollars = 0.16m tickets * $11 = $1.76m all seasons.

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