Question

Broome Music Society is a not-for-profit organization that brings guest artists to the community's greater metropolitan area. The music society just bought a small concert hall in the center of town to house its performances. The lease payments on the concert hall are expected to be $2,000 per month. The organization pays its guest performers $600 per concert and anticipates corresponding ticket sales to be $2,500 per concert. The music society also incurs costs of approximately $400 per concert for marketing and advertising. The organization pays its artistic director $55,000 per year and expects to receive $52,000 in donations in addition to its ticket sales. Read the requirements. Requirements 1 and 2. Determine the formula used to calculate the breakeven point, then enter the amounts in the formula to calculate the number of concerts needed in order to break even under the scenarios presented in requirement 1 and requirement 2. (Abbreviations used: CM = Contribution margin, Var. = Variable) Fixed costs - Fixed income 0 Requirements Req. 1 - 1. If the Broome Music Society just breaks even, how many concerts does it hold? 2. In addition to the organization's artistic director, the music society would like to hire a marketing director for $42,000 per year. What is the breakeven point? The music society anticipates that the addition of a marketing director would allow the organization to increase the number of concerts to 39 per year. What is the music society's operating income/loss) if it hires the new marketing director? The music society expects to receive a grant that would provide the organization with an additional $21,000 toward the payment of the marketing director's salary. What is the breakeven point if the music society hires the marketing director and receives the grant? Print Done

Answer 1

1) Fixed costs = Concert lease payments per year + Payments to Artistic director = (2000*12) + 55000 = $79000

Fixed income = Donations received = $52000

Ticket sales	2500
Lease payment	-600
Marketing & Advertising	-400
Contribution per concert	$1500

Concerts to be held by Broome Music to break even = (79000-52000)/1500 = 18 concerts

2) If marketing director is hired, then total fixed costs = 79000+42000 = $121000

Concerts to be held by Broome Music to break even = (121000-52000)/1500 = 46 concerts

If 39 concerts are held per year then contribution = $1500*39 = $58500

Income/(Loss) = 58500 - (121000 - 52000) = (10500)

Therefore, if it hires new marketing director there will be loss of $10500.

3) Concerts to be held by Broome Music to break even if additional grant is received = (121000-52000-21000)/1500 = 32 concerts

Note: If you want break even point in dollars, then multiply concerts to be held by ticket sale of $2500 which will give you break even sales.