Question

Playhouse Square in Cleveland regularly hosts touring companies of Broadway shows. Playhouse Square negotiates a contract with the producers of the Broadway show in which the show runs for a predetermined number of performances, Playhouse Square takes in revenue from the tickets that they sell for the performances, and they pay the producers of the show a set fee. Playhouse Square is currently negotiating to host "The Lion King." While they are negotiating the contract, they need to estimate their future sales and profitability to determine how many performances they need to book the show for. Playhouse Square plans to book “The Lion King” for a month, which will cost them a flat fee of $300,000. The theater in which the show was booked holds 1,000 seats. They expect to sell tickets to the show at their usual Broadway price of $50.00 per ticket. To support the run of “The Lion King," Playhouse Square will need to provide 30 employees. Playhouse Square pays their employees $15.00 per hour, and they expect the stagehands to work 6 hours per performance. They will also need to print 3000 programs for each performance at a cost of $200 per performance, and to order food for the concessions stand at a cost of $1800 per performance. The cost of marketing the show is budgeted to be $200,000. Finally, Playhouse Square also needs to cover their overhead costs of $200,000 per month and salary costs of $150,000 per month. 1. What are Playhouse Square's total fixed costs per month? 2. For performances of "The Lion King," what will Playhouse Square's variable cost per performance be? 3. If Playhouse Square sells out a performance, what is their contribution margin on that performance? 4. If Playhouse Square sells out every performance, how many performances will they need to hold to break even? 5. If Playhouse Square sells out every performance, how many performances will they need to hold to earn a profit of $150,000 on the show?

Answer 1

Answer is given below with all working

1. Total Fixed Cost Flat Fee Marketing Cost Overhead costs Salary Total Fixed Cost $300,000 $200,000 $200,000 $150,000 $850,000 2. Variable cost per performance Employee salary Printing Food Cost Variable cost $2,700 $200 $1,800 $4,700 $50,000 Contribution Margin of performance Ticket sales (1,000 tickets *$50) Less Variable Cost Contribution Margin per show $4,700 $45,300 4. Break-even performances needed Fixed Cost $850,000 Contribution Margin $45,300 18.76 Rounded off to 19 shows 5. Fixed Cost Profit Total Target $850,000 $150,000 $1,000,000 Number of shows needed to achieve above Target Total Target $1,000,000 22.08 Contribution Margin $45,300 Rounded off to 22 shows