Question

The lively Arts Group, a division of City University, produces a very popular series of programs. Each of the five programs offered is annually scheduled for eight performances. The $8 per performance tickets have a $3 cost for printing and ticket agent commission. The fixed costs have been budgeted at $40,000 per program. The theater seats a maximum of 1,500 people.   

Required: Calculate how many tickets they must sell to break even, Calculate how many tickets they must sell to generate an operating surplus of $30,000 annually, calculate the average number of theater seats that must be sold at each performance for the organization to meet its surplus objective.

Answer 1

Break even point in tickets = Fixed cost / contribution per unit

contribution per unit = sale * variable cost = 8 - 3 = 5

BEP per performance = (40000/8) / 5 = 1000 tickets

Target Profit = 30000

Target sales = [(Fixed cost x no. of programs ) + profit]/contribution per unit x no. of performance x no,of programs

Target sales = [( 40000 x 5) + 30000] / 5 x 8 x 5 = 230000 / 200 = 1150 tickets

1150 tickets must be sold at each performance to achieve surplus of 30000 annually