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.

Answer 1

To compute the revenue for each show, multiply the number of tickets sold by the ticket price. The variable costs for each show include the cast salaries and the program-printing cost.

Step-by-step explanation:

1. To compute the revenue for each show, you multiply the number of tickets sold by the ticket price. In this case, the average show sells 1,300 tickets at $60 per ticket, so the revenue per show is 1,300 x $60 = $78,000.

The variable costs for each show include the cast salaries and the program-printing cost. The cast of each show consists of 65 members, each earning a net average of $340 per show. So, the total cast expenses per show are 65 x $340 = $22,100. The program-printing cost per guest is $8, so the total program-printing cost per show would vary depending on the number of guests.