Question

Brookville PlayHouse Cost Structure

Fixed Overhead Cost       =       $8,000

Rehearsal Cost               =       $4,000

Performance Cost           =       $2,500

Variable Cost                 =       $2/Patron

Current Situation

Orchestra performs 2 Saturdays each month with new program for each performance.

Capacity      =       1000 seats

Price           =       $10/ticket

Attendance =       800 patrons

Alternative to Improve the Situation

1. “Student Rush”, tickets at $5/patron sold half hour before show on first-come-first-serve-basis; Can sell 200 additional tickets who otherwise would not attend. - calculate incremental revenue and incremental cost.

Answer 1

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Ans:

Incremental Revenue = 200 additional ticket x $5 per patron = $1,000

Incremental cost = 200 additional ticket* x $2 per patron = $400

Note:

* Every additional ticket has considered as 1 patron.

(i) Fixed overhead cost / Rehearsal cost / performance cost, shall not make any difference for any increase or decrease of patron, as the same expenses has already been expended. Hence, the same has not been considered for incremental cost.

(ii) Only veriable cost will be considered for any increase or decrease of patron. Hence, the same has been considered for incremental cost.

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