As manager of the St. Cloud Theatre Company, you have decided that concession sa
ID: 361127 • Letter: A
Question
As manager of the St. Cloud Theatre Company, you have decided that concession sales wil support themselves. The following table provides the information you have been able to put together thus far:
TABLE:
Item: Soft Drinks, Selling Price: $1.00, Variable Cost: $ .65, % of Revenue: 25
Item: Wine, Selling Price: 1.75, Variable Cost: .95, % of Revenue: 25
Item: Coffee, Selling Price: 1.00, Variable Cost: .30, % of Revenue: 30
Item: Candy, Selling Price: 1.00, Variable Cost: .30, % of Revenue: 20
Last year's manager, Jim Freeland, has advised you to be sure to add 10% of variable cost as a waste allowance for all catergories.
You estimate labor cost to be $250.00 (5 booths with 2 people each). Even if nothing is sold, your labor cost will be $250.00, so you decide to consider this a fixed cost. Booth rental, which is a contractual cost at $50.00 for each booth per night, is also a fixed cost.
A) What is the break-even volume per evening performance?
B) How much wine would you expect to sell each evening at the break-even point?
*Please show all steps and work. Thank you.
Explanation / Answer
Total fixed cost per evening
= Labour cost + Booth rental
= $ 250 + $50
= $300
Let cumulative breakeven volume = 100 per evening
Therefore ,
Volume for soft drinks = 25.N
Volume for Wine = 25.N
Volume for Coffee = 30.N
Volume of Candy = 20.N
Contribution from each drink
= Total revenue – Total variable cost
= Price/ drink x Number of drinks - 1.1x Variable cost/drink x Number of drinks ( remarks : multiplication factor is 1.1 I/O 1 because 10% waste allowance has been taken into account )
Therefore,
Contribution from soft drink
= 1 x 25.N - 0.65 x 1.1 x 25.N
= 25.N – 17.875.N
= 7.125N
Contribution from wine
= 1.75 x25.N – 0.95 X 1.1x 25.N
= 43.75.N – 26.125.N
= 17.625.N
Contribution from Coffee
= 1 x 30.N – 0.30 x 1.1x 30.N
= 30.N -9.9.N
= 20.1N
Contribution from Candy
= 1 x 20.N – 0.3 x 1.1 x 20.N
= 20.N – 6.6.N
= 13.4N
Thus total contribution from 4 types of drinks
= 7.125N + 17.625N + 20.1N + 13.4N
= 58.25.N
At breakeven point , Total contribution = Total fixed cost
Therefore ,
58.25N = 300
Or, 100.N = 300 X 100/58.25 = 515.02 ( 515 ROUNDED TO NEAREST WHOLE NUMBER )
Amount of wine one would expect to sell at breakeven point
= 25.N = 515/4 = 128.75 ( 129 ROUNDED TO NEAREST WHOLE NUMBER )
BREAKEVEN VOLUME PER EVENING PERFORMANCE = 515
AMOUNT OF WINE ONE WOULD EXPECT TO SELL EACH EVENING = 129
BREAKEVEN VOLUME PER EVENING PERFORMANCE = 515
AMOUNT OF WINE ONE WOULD EXPECT TO SELL EACH EVENING = 129
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.