Question

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XYZ operates a movie theater. A movie ticket is $14.50 per ticket, and costs nothing. On average 60% of the customers will buy a soda ($6 each, cost $1); 40% will buy food ($6 average price with a cost of $2). The fixed costs are $324,700.

1. Calculate the break-even quantity and $sales for tickets, soda and food(10 points)  
2. The theater wishes to make $81,175 profit. Calculate the target profit quantity and sales for tickets, soda and popcorn (10 points)

Make sure to show your weighted average calculations, "bundle" calculations, and final answers.

Answer 1

Answer:

1)

Description	Sales	variable expenses	Contribution margin (Sales - variable exp)	sales mix	WAC (Contribution margin * sales mix)
Tickets	$14.50	$ 0	$ 14.50	1	14.50
Soda	$ 6	$ 1	$ 5	0.60	3
Food	$ 6	$ 2	$ 4	0.40	1.6
Total				2	19.1

Break-even sales units

= Fixed exp / contribution margin = $ 3,24,700 / 19.1 = 17,000 units

17,000 units

Break-even point (dollars)

= Break even sales * sales price * sales mix [ for each type] = 17,000 * ( 14.50*1 +6*0.60+6*0.40) = $ 3,48,500

$3,48,500

2)

Target profits in case of $ 81,175

Target units to earn profit of $ 81,175

=(profit + fixed costs)/WAC =($ 81,175 + $ 3,24,700)/ 19.1 = $ 4,05,875 / 19.1 = 21,250 units

21,250 U

• Units for Tickets = 1/2*21,250 = 10,625 ( sales mix of product / total sales mix * target units)
• Units for soda = 0.6/2 * 21,250 = 6375
• Units for food = 0.4/2 * 21,250 = 4,250