Question

Albany 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 $3,000 per month. The organization pays its guest performers $1,000 per concert and anticipates corresponding ticket sales to be $3,500 per concert. The music society also incurs costs of approximately $1,200 per concert for marketing and advertising. The organization pays its artistic director $41,000 per year and expects to receive $38,000 in donations in addition to its ticket sales. Read the reguirements 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) CM per concert Fixed costs Fixed income Concerts needed to break even Reg. 1 )/ Requirements 1. If the Albany 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 $39,000 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 53 per year. What is the music society's operating income/(loss) if it hires the new marketing director? 3. The music society expects to receive a grant that would provide the organization with an additional $13,000 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?

Answer 1

1.

Contribution per concert

Selling Price	3500
Less:
Variable Costs: 1. Payment to guest performer	1000
2. Marketing and advertising	1200
Contribution Margin (CM) per Concert	1300

.

Fixed costs:
Lease (3000*12)	36000
Artistic director	41000
Total fixed costs	77000
Fixed Income	38000

So, (77000-38000)/1300 = 30 Concerts.

2. If new marketing director is hired fixed costs go up by $ 39000. Ie (77000+39000-38000)/1300 = 60 concerts.

Since break even is 60 concerts, 53 concerts will incurr losses. It will be,

Contribution=> 1300*53 = 68900. (A)

Less fixed costs minus fixed income=> (77000+39000-38000)= 78000. (B)

So, Loss = A-B = (9100).

3. Assuming grant is fixed-income,

Fixed costs less fixed less income => (77000+39000)-(38000+13000) = 65000. So BEP (Units) = 65000/1300 = 50 concerts.